Less Informative Report Cards May Be Better"
Abstract:
We examine reputation building on the part of a long-run player who interacts with a sequence of short run players. The long-run player selects the type of short-run player in each interaction, with the market observing the (noisy) outcome of the interaction but not the type of short-run player. The long-run player has an incentive to inefficiently distort the sequence of types with whom she interacts in a quest to build her reputation. As a result, it may be welfare-improving for the market to observe less information about the outcomes of the interactions. We view the analysis as capturing the tension that can arise more generally between those seeking to measure a trait and those with an incentive to manipulate the information on which the measurement is based.