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Should the Flatterers be Avoided?

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  • Nicolas Klein

    (University of Bonn)

  • Tymofiy Mylovanov

    (Penn State University)

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    Abstract

    We analyze a dynamic career concerns game between an expert and a decision maker. In each period, the decision maker has the option of obtaining cheap-talk advice from the expert, who is merely interested in his continued employment. The expert's quality is initially unknown to both parties. The incentive problem is that the expert might attempt to avoid appearing uninformed by concealing his true opinion if it contradicts the predominant view. Nevertheless, if a competent expert never makes mistakes, the fully revealing first-best outcome can be implemented provided the time horizon is sufficiently long. For shorter time horizons, the optimal equilibrium in this case features a grace period during which the expert accumulates some private information about his quality.

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    File URL: http://www.economicdynamics.org/meetpapers/2011/paper_1273.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1273.

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    Date of creation: 2011
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    Handle: RePEc:red:sed011:1273

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    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    1. Keller, Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," Discussion Papers in Economics 10575, University of Munich, Department of Economics.
    2. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 231-251.
    3. Godfrey Keller & Martin Cripps, 2003. "Strategic Experimentation with Exponential Bandits," Economics Series Working Papers 143, University of Oxford, Department of Economics.
    4. Dirk Bergemann & Juuso Valimaki, 1996. "Experimentation in Markets," Discussion Papers 1220, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
    6. Dino Gerardi & Lucas Maestri, 2008. "A Principal-Agent Model of Sequential Testing," Cowles Foundation Discussion Papers 1680, Cowles Foundation for Research in Economics, Yale University.
    7. Dirk Bergemann & Juuso Valimaki, 1996. "Learning and Strategic Pricing," Cowles Foundation Discussion Papers 1113, Cowles Foundation for Research in Economics, Yale University.
    8. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    9. Godfrey Keller & Sven Rady, 2005. "Strategic Experimentation with Undiscounted Bandits," 2005 Meeting Papers 473, Society for Economic Dynamics.
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