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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, November 5, 2019
4:00pm to 5:00pm
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Baxter B125
Test design under falsification
Vasiliki Skreta, Professor, Department of Economics, University of Texas at Austin,

Abstract: We characterize a receiver-optimal test when manipulations are possible in the form of type falsification. Optimal design exploits the following manipulator trade-off: while falsification may lead to better grades, it devalues their meaning. We show that optimal tests can be derived among falsification-proof ones. Our optimal test has a single ‘failing' grade, and a continuum of ‘passing' grades. It makes the manipulator indifferent across all moderate levels of falsification. Good types never fail, but bad types may pass. An optimal test delivers at least half of the full-information value to the receiver. A three-grade optimal test also performs well.
(Written with Eduardo Perez-Richet)

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