SMU SOE Seminar (Oct 4, 2019): Timely Persuasion

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ABSTRACT This paper proposes a simple dynamic information disclosure policy that eliminates panic. A panic occurs when some agents take an undesirable action (attack) because they fear that others will do the same, and thus, causing a regime change, even though it was not warranted. We consider a mass of privately informed agents who can attack a regime anytime within a time window. Attack is irreversible, delayed attack is costly, and the delay cost is continuous. We propose a policy called “disaster alert”, which at a given date publicly discloses whether the regime is going to change regardless of what the agents do. We show that a timely alert persuades the agents to wait for the alert and not attack if the alert is not triggered, regardless of their private information, and thus, eliminates panic. We demonstrate how this result can be used to design practical policies to reduce, if not eliminate, panic in financial markets. Keywords: Information design, panic. JEL Codes: D02, D82, D83, G28. Click here to view the paper. Click here to view the CV.
		PRESENTER Zhen Zhou Tsinghua University
		RESEARCH FIELDS Applied Theory Information Economics Financial Economics
		DATE: 4 October 2019 (Friday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903