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Networks Working Group - Bartosz Redlicki (Doctoral student, Economics, Cambridge)

When Nov 28, 2014
from 01:00 PM to 02:00 PM
Where Keynes Room
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Speaker: Bartosz Redlicki

Title: Information Diffusion by Cheap Talk and Optimal Targeting

We study strategic information transmission in a population consisting of two types of consumers: enthusiasts and skeptics of a new product. A single producer targets one consumer, who learns the quality of the product. Information about the quality is then diffused in a chain of communication by cheap talk. Communication is strategic because the product has an externality property: each consumer’s payoff is affected by other consumers’ decisions of whether to adopt the product. We show that truthful diffusion is possible if and only if the strength of externality is at a moderate level. In the truthful equilibrium, it is always optimal for the producer to target an enthusiast. However, in the unique neologism-proof babbling equilibrium, a skeptic is the optimal target for some parameter values. Applications of the model include marketing and political lobbying.