The Risk of Misinforming for Competing Messages

Introduction This paper is an extension of previous findings presented in Christozov, Chukova, and Mateev (2006, 2007, 2008). We consider the marketplace as a place where messages, describing different products suitable for solving one and the same set of clients' problems, are competing. The earlier studies, mentioned above, address the risk of misinforming in the case of a single message distributed to a group of potential clients and its effect on their purchase decision. Here, these models are extended to allow evaluation of the risk for multiple competing offers. The misinforming is due to the existence of information asymmetry between the two parties--the sender and receiver. This asymmetry is actually two-fold, because the sender knows very well the meaning of the "information" s/he is providing, but his/her knowledge regarding the receiver's objectives on the use of this information is limited. From this viewpoint an assessment of the risk of mis informing provides learning opportunity to both parties and offers some ideas on how to improve the informing process. The phenomenon of information asymmetry between two parties occurs when one of the parties has better understanding and is better informed on the subject of communication than the other one. There are several aspects of information asymmetry that have attracted the interest of researchers. The concept of information imbalance originates in Arrow (1963/2001). His ideas were further developed by Akerlof (1970) in his paper "The Market for 'Lemon's", where the term "information asymmetry" was firstly introduced. Akerlof investigated the influence of asymmetric information on the market value of a commodity and his ideas initiated studies on the impact and usage of the information asymmetry to improve the influence in business relationships. Slovac (1993) studied the asymmetric impact of negative and positive information on the social trust, known as principle of Information Asymmetry or Trust Asymmetry. White and Eiser (2005) continue this line of research. The role of information asymmetry as a source of misinterpretation, which results in misinforming and/or misleading in a sales/purchase process and might lead to wrong purchase decisions has never been studied at the level it deserves. Some authors (Hseih, Lai, & Shi, 2006) consider the impact of information asymmetry on the success in business transactions, but they do not go beyond recommendations on how to improve the information process. Christozov, Chukova, and Mateev (2006, 2007, 2008) developed a model to quantify the risk of misinforming, caused by information asymmetry and the current paper extends this study. The outline of this paper is as follows. The next section summarizes the background of the problem. The following two sections describe the notations and provide a summary of the models studied earlier and present the new model for two competing messages. This model is then generalized to the case of n competing messages. The final section consists of conclusions and future research directions. Background A Successful Informing Process Definition 1: We consider "a success" in an informing process in several levels, where the higher level "success" implies "success" in all lower levels: Level 1: An informing process is successful if the message created by the sender is successfully transmitted to the receiver. Level 2: The process is successful, if the receiver is able to read and understand the transmitted message. Level 3: The process is successful, if the receiver does not ignore the information included in the message, but rather accepts and adopts the information encoded in it, i.e., the receiver acquires new knowledge. Level 4: The process is successful, if the acquired knowledge coincides with the information the sender intended to provide to the receiver. Also this level of success implies that the objectives of the receiver in acquiring this information meet the intention (purpose) of the sender in providing it. …