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Multiple Advisors with Reputation

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  • Junghun Cho
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    Abstract

    This paper examines reputation, the belief of a decision maker about types of advisors, in a two period cheap talk model where the decision maker obtains messages from two advisors. The decision maker believes that an advisor can be one of two types - an advisor who is biased towards suggesting any particular advice (bad advisor) or an advisor who has the same preferences as the decision maker (good advisor). I assume that each advisor perfectly knows the type of the other advisor, but his signal about the state of the world is imperfect. Strong reputational concern makes the good advisor sometimes tell a lie in the first period regardless of the type of the other advisor. It is shown that the presence of the other advisor does affect the message sent by an advisor. The good advisor has a greater incentive to tell a lie when he knows that the other advisor is bad rather than good. If each type of advisor considers his second period sufficiently important, it is better for the decision maker to have a single advisor.

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    Bibliographic Info

    Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp314.

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    Date of creation: Dec 2006
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    Handle: RePEc:cer:papers:wp314

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    Keywords: Reputation; Cheap talk;

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    1. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
    2. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    3. Marco Battaglini, 2000. "Multiple Referrals and Multidimensional Cheap Talk," Econometric Society World Congress 2000 Contributed Papers 1557, Econometric Society.
    4. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    5. In-Uck Park, 2005. "Cheap-Talk Referrals of Differentiated Experts in Repeated Relationships," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 391-411, Summer.
    6. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
    7. Jeffrey Ely & Jusso Valimaki, 2002. "Bad Reputation," NajEcon Working Paper Reviews 391749000000000514, www.najecon.org.
      • Jeffrey C. Ely & Juuso Valimaki, 2002. "Bad Reputation," Discussion Papers 1348, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
    9. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
    10. Battaglini Marco, 2004. "Policy Advice with Imperfectly Informed Experts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-34, April.
    11. Levy, Gilat & Razin, Ronny, 2004. "Multidimensional Cheap Talk," CEPR Discussion Papers 4393, C.E.P.R. Discussion Papers.
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