The Empirical Content of Reputation Effects

Abstract

I revisit the classic reputation model in which a long-lived player, either normal or committed, faces short-lived players who may misspecify the commitment-type signal process. I show that the long-lived player's patience makes reputation powerful but leaves its value sensitive both to short-lived players' subjective commitment-type signal process and to discounting. Every subjective process is arbitrarily close over any fixed horizon to processes eliminating his reputation gains and also to processes preserving them. Moreover, generically, all equilibria yield substantial gains along some discount-factor sequences approaching one, while even the best equilibrium yields no positive gain in the limit along others.