Information unravelling
Once the best types prove how good they are, staying quiet marks you as worse, so the next best must prove it too, and disclosure spreads all the way down.
Often misread asExpecting unravelling wherever private information exists, so silence is always read as damning, even when disclosure is expensive, the claim cannot be verified, or the sender may genuinely not know.
How to see it
Silence gets read as the worst case, so everyone ends up talking
If quality can be proved and withholding it is permitted, the very best type discloses in order to separate itself from the rest. That leaves a worse pool, so the best of what remains discloses too, and the argument runs all the way down until only the worst stay quiet, and they are correctly assumed to be the worst. Full disclosure arrives without anyone being required to disclose.
The checkUnravelling needs verifiable claims, near-costless disclosure and common knowledge that the sender actually knows. Remove any one of the three and pooling can survive.
Try itA restaurant may display its hygiene rating or not. Then consider a wine merchant who may or may not have tasted this particular case. Say which setting unravels, and name the assumption that fails in the other.
Games that show it
Know these first
Easily confused with
Sources
- Grossman, S. (1981). Journal of Law and Economics 24(3), 461-483.
- Milgrom, P. & Roberts, J. (1986). RAND Journal of Economics 17(1), 18-32.