THE BURDEN OF PROOF IN A GAME OF PERSUASION

An arbitrator faces the task of deciding the level of compensation to be received by a plaintiff from a defendant. The arbitrator must rely on the verifiable submissions of the two interested parties. Because the information of the interested parties is not verifiable, the ''unravelling argument'' has no force. Nevertheless, a class of equilibria of this game gives rise to a particularly simple decision rule for the arbitrator which appeals to a probability distribution over the payoff-relevant state space alone. The uncertainty concerning the precision of the disputants' information enter as parameters in this distribution. This parameterization yields an answer to how the arbitrator's decision rule should be modified as the information of the disputants changes.