SMU SOE Seminar (Mar 10, 2017): Information Manipulation and Social Coordination

This paper studies information manipulation in a sender/receiver game with many imperfectly coordinated receivers. An individual receiver wants to align their individual choices both with an imperfectly observed state and with the choices made by other receivers. The sender is informed about the state and seeks to prevent the receivers coordinating on it. To prevent coordination, the sender takes a costly hidden action that influences the receivers' individual signals. Although the sender is, in equilibrium, unable to introduce any bias into the signals, manipulation can nonetheless be payoff-improving for the sender because it reduces signal precision and makes it harder for receivers to coordinate. However, manipulation can also backfire and reduce the sender's payoff if signals are intrinsically precise and the costs of manipulation are high. This occurs because manipulation induces correlation between an individual's signal and his prior, making the receivers more responsive to their individual signals and thus their aggregate action less affected by the common noise in their prior.

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