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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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    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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    1. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    2. Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
    3. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 231-251, 04.
    4. Gerardi, Dino & Maestri, Lucas, 2012. "A principal-agent model of sequential testing," Theoretical Economics, Econometric Society, vol. 7(3), September.
    5. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01.
    6. Keller, R Godfrey & Rady, Sven, 2009. "Strategic Experimentation with Poisson Bandits," CEPR Discussion Papers 7270, C.E.P.R. Discussion Papers.
    7. Dirk Bergemann & Juuso Valimaki, 1999. "Experimentation in Markets," Cowles Foundation Discussion Papers 1214, Cowles Foundation for Research in Economics, Yale University.
    8. Godfrey Keller & Sven Rady, 2005. "Strategic Experimentation with Undiscounted Bandits," 2005 Meeting Papers 473, Society for Economic Dynamics.
    9. Dirk Bergemann & Juuso Valimaki, 1996. "Learning and Strategic Pricing," Cowles Foundation Discussion Papers 1113, Cowles Foundation for Research in Economics, Yale University.
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