11/21/19 | 4:15pm | E51-335
Reception to follow.
Francis de Vericourt
European School of Management and Technology
The World Health Organization seeks effective ways to alert its member states about global pandemics. Motivated by this challenge, we study a public agency’s problem of designing warning policies to mitigate potential disasters that occur with advance notice. The agency privately receives early information about recurring harmful events and issues warnings to induce an uninformed stakeholder to take costly preemptive actions. The agency’s decision about whether to issue a warning critically depends on its credibility, which we define as the uninformed party’s belief regarding the accuracy of the agency’s information. This belief is updated over time by comparing the agency’s warnings with the actual incidence of harmful events. The agency, therefore, faces a trade-off between eliciting a proper response today and maintaining its credibility in order to elicit responses to future adverse events.
We formulate this problem as a dynamic Bayesian persuasion game, which we solve in closed form. We find that the agency must be sufficiently credible to elicit a mitigating action from the uninformed party for a given period. More importantly, the agency sometimes strategically misrepresents its advance information about a current threat in order to cultivate its future credibility. When its credibility is low (i.e., below a threshold), the agency downplays the risk and actually downplays more as its credibility improves. By contrast, when its credibility is high (i.e., above a second higher threshold), the agency sometimes exaggerates the threat. In this case, a less credible agency exaggerates more. Only when the agency’s credibility is moderate does it consistently send warning messages that fully disclose its private information about a potential disaster. These findings provide prescriptive guidelines for designing warning policies and suggest a plausible rationale for some of the false alarms or omissions observed in practice.
Bio: Francis de Véricourt is Professor of Management Science at the European School of Management and Technology (ESMT) in Berlin. He has lived and worked in France, USA, Germany and Singapore.
Francis was the first Associate Dean of Research at ESMT and held faculty positions at Duke University and INSEAD, where he also was the Paul Dubrule Chaired professor in Sustainable Development. He was a post-doctoral researcher at Massachusetts Institute of Technology (MIT) and received a MS degree in applied mathematics and computer science from the Grenoble Institute of Technology as well as a PhD degree from Université Paris VI, France.
His general research interests are in the areas of analytics, operations research and decision science, with a current focus on health care and sustainability. He is the author of numerous academic articles in prominent management, analytics and economics journals such as Management Science, Operations Research, American Economics Review and others. He received several outstanding research awards, including the ENRE and MSOM best publication awards of the Institute for Operations Research and the Management Sciences.
Francis has been the recipient of many teaching awards for delivering classes to MBA and Executive MBA students at ESMT and INSEAD. He has extensive experience in executive education and corporate learning solutions. He is a regular speaker in academic and industry forums.