Seminar – Warning Against Recurring Risks: An Information Design Approach

Professor Francis de Véricourt, 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, this study focuses on 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 party to take costly pre-emptive 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 sender, therefore, faces a trade-off between eliciting a proper response today and maintaining her credibility in order to elicit responses to future adverse events. The study formulates this problem as a dynamic Bayesian persuasion game, which is solved in closed form. Findings show 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 (for example, below a threshold), the agency downplays the risk and actually downplays more as its credibility improves. By contrast, when its credibility is high (for example, 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.

Speaker bio

Francis de Véricourt is Professor of Management Science at ESMT European School of Management and Technology. From August 2010 until August 2013 he was on leave at INSEAD, where he was an Associate Professor of Technology and Operations Management and the Paul Dubrule Chaired Professor of Sustainable Development. He was the Associate Dean of Research at ESMT from 2007 to 2010. Before joining ESMT in 2007, Francis was an Associate Professor of Operations Management at Fuqua School of Business, Duke University. In 2000, he was a post-doctoral researcher at Massachusetts Institute of Technology (MIT). Francis received his PhD in Operations Research with Honours from Université Paris VI, France, in 2000. He holds an honours degree in Engineering in Applied Mathematics and Information Technology from Ecole Nationale Supérieure d’lnformatique et de Mathematiques Appliquées de Grenoble (ENSIMAG).

Francis’s general research interest is in the area of data-driven and managerial decision-making, with a current focus on healthcare, business sustainability, and service systems. He is the author of many research articles and has extensively published in leading academic journals, including Management Science, Operations Research, and American Economic Review. For his research, he has received a number of outstanding awards, including the 2011 MSOM best paper award of the Institute for Operations Research and the Management Sciences. He also holds editorial positions in flagship journals in operations research and management science.

Francis received numerous teaching awards for delivering classes to MBA and Executive MBA students at ESMT and INSEAD. He frequently teaches Executive Education Programs and is a regular speaker in academic and industry forums.