Prof. Vasiliki Skreta Ph.D. // The University of Texas at Austin, USA, and University College London, UKTo the profile
Test Design Under Undetectable FalsificationResearch Seminars
The paper presented in this Virtual Market Design Seminar 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. The authors show that optimal tests can be derived among falsification-proof ones. Their optimal test has a single ‘failing’ grade, and a continuum of ‘passing’ grades. It makes the manipulator indifferent acrossall 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 threegrade optimal test also performs well.