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Biased Motivation of Experts: Should They be Aggressive or Conservative?

  • Noriyuki Yanagawa

    (Faculty of Economics, University of Tokyo)

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    When 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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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/138.pdf
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    Paper 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.

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    Length: 24 pages
    Date of creation: Sep 2008
    Date of revision:
    Handle: RePEc:cfi:fseres:cf133
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    1. Gromb, Denis & Martimort, David, 2007. "Collusion and the organization of delegated expertise," Journal of Economic Theory, Elsevier, vol. 137(1), pages 271-299, November.
    2. Baliga, Sandeep & Sjostrom, Tomas, 2001. "Optimal Design of Peer Review and Self-Assessment Schemes," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 27-51, Spring.
    3. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August.
    4. John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, 02.
    5. Hao Li, 2001. "A Theory of Conservatism," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 617-636, June.
    6. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February.
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