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Iterated Revelation: How to Incentive Experts to Complete Incomplete Contracts

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  • Evan Piermont

Abstract

This paper examines how a decision maker might incentivize an expert to reveal novel aspects of the decision problem, expanding the set of contracts from which the decision maker can choose. The chosen contract will determine, along with the resolution of uncertainty, the payoffs to both players. I show that the set of achievable outcomes under any (incentive compatible) mechanism is characterized by a small and tractable class of iterated revelation mechanisms (IRMs). An IRM is a dynamic interaction wherein each round the expert chooses to reveal some novel contingencies and the decision maker proposes a contract that the expert can accept or reject; the IRM ends after rejection or when nothing novel is revealed. I then consider the set of robust IRMs -- those that maximize the worst case outcome across all types of expert -- and show these are characterized by a principle of myopic optimality: at each round, the decision maker maximizes his payoff as if the expert had nothing further to reveal. The set of robust IRMs also delineate the payoffs achievable by any efficient mechanism.

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  • Evan Piermont, 2023. "Iterated Revelation: How to Incentive Experts to Complete Incomplete Contracts," Papers 2304.05142, arXiv.org, revised Mar 2024.
    • Handle: RePEc:arx:papers:2304.05142
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    References listed on IDEAS

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    1. Jean Tirole, 2009. "Cognition and Incomplete Contracts," American Economic Review, American Economic Association, vol. 99(1), pages 265-294, March.
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    3. Lei Haoran & Zhao Xiaojian, 2021. "Delegation and Information Disclosure with Unforeseen Contingencies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 637-656, June.
    4. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
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    6. Piermont, Evan, 2017. "Introspective unawareness and observable choice," Games and Economic Behavior, Elsevier, vol. 106(C), pages 134-152.
    7. Gabriel Carroll, 2019. "Robustness in Mechanism Design and Contracting," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 139-166, August.
    8. Herweg, Fabian & Schmidt, Klaus M., 2020. "Procurement with Unforeseen Contingencies," Munich Reprints in Economics 84781, University of Munich, Department of Economics.
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