The fragility of reputation effects

2026-05-16

AI Summary

This study investigates whether reputational effects remain robust when myopic players harbor even slight doubts about the correctness of the signal structure. Extending the canonical reputation model, the authors introduce dual uncertainty on the part of short-run players—regarding both the type of the long-run strategic player and the mechanism generating public signals—and formulate an incomplete-information dynamic game. The analysis reveals that even an infinitesimally small degree of misspecification concern is sufficient to completely undermine the conventional reputation mechanism: the equilibrium payoff of a patient, strategic long-run player is strictly bounded below the complete-information benchmark, precluding any reputational premium. This finding challenges established conclusions about the robustness of reputation effects and demonstrates the profoundly destabilizing impact of model misspecification on reputational equilibria.

Abstract

I revisit the canonical reputation framework in which a long-lived player interacts with a sequence of short-lived opponents and may be either strategic or a commitment type who always plays the same, possibly mixed, action. I depart by allowing short-lived players to be uncertain not only about the long-lived player's type, but also about the signal structure. I show that even vanishingly small misspecified skepticism of short-lived players about commitment as an explanation of the observed signals can completely eliminate reputation effects: a patient strategic long-lived player's equilibrium payoff is bounded above by the canonical complete-information benchmark.

Problem

• reputation effects
• incomplete information
• signal structure
• misspecified beliefs
• strategic interaction

Innovation

• reputation effects
• model misspecification
• signal structure uncertainty
• commitment type
• equilibrium fragility