Sara Shahanaghi (Columbia University)(Webinar)
1 February 2022 @ 16:00 - 17:15
“Competition and Errors in Breaking News”
Abstract. Reporting errors are endemic to breaking news, even though accuracy is prized by consumers. I present a continuous-time model to understand the strategic forces behind such reporting errors. News firms are rewarded for reporting before their competitors, but also for making reports that are credible in the eyes of consumers. Errors occur when firms fake, reporting a story despite lacking evidence. I establish existence and uniqueness of an equilibrium, which is characterized by a system of ordinary differential equations. Errors are driven by both a lack of commitment and by competition. A lack of commitment power gives rise to errors even in the absence of competition: firms are tempted to fake after their credibility has been established, capitalizing on the inability of consumers to detect fake reports. Competition exacerbates faking by engendering a preemptive motive. In addition, competition introduces observational learning, which causes errors to propagate through the market. The equilibrium features rich dynamics. Firms become gradually more credible over time whenever there is a preemptive motive. The increase in credibility rewards firms for taking their time, and thus endogenously mitigates the haste-inducing effects of preemption. A firm’s behavior will also change in response to a rival report. This can take the form of a copycat effect, in which one firm’s report triggers an immediate surge in faking by others.