Biased Motivation of Experts: Should They be Aggressive or Conservative?
AbstractWhen we intend to hire a professional expert, which type of expert should we hire? Although it is sometimes claimed that decisions of experts tend to be conservative, is it optimal to choose a conservative expert? This paper attempts to answer these questions. It will show that a principal should hire a conservative expert, i.e., an expert who has biased preference for maintaining the status quo. The crucial aspect is that there is a possibility that the expert may not transmit truthful information. A neutral expert or an expert who has biased preference for implementing the project has a very strong incentive to recommend the project. Even when he/she cannot recognize whether the project is sufficiently productive, he may recommend the project. Hence, a conservative expert is considered to be beneficial for the principal.
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Bibliographic InfoPaper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-133.
Length: 24 pages
Date of creation: Sep 2008
Date of revision:
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