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Cheap Talk Reputation and Coordination of Differentiated Experts

  • In-Uck Park

    (University of Bristol)

This paper examines the effectiveness of cheap talk advice in recurrent relationships between a customer, and multiple experts who provide professional services with differentiated specialties (e.g, auto mechanics, physicians). Specifically, the sustainable honesty level is characterized in relation to the degree of rivalry among the experts. The three main findings are: 1) Fully honest advice may not be sustained if the profitability of service provision varies widely across problems. 2) As the number of experts increases due to a higher degree of specialization, the maximum equilibrium honesty level deteriorates. 3) Nonetheless, the equilibria that pass a certain credibility check on their punishment phases, implement the same (unique) honesty level regardless of the number of experts. Furthermore, the customer can extract this honesty level by appointing a "panel" of only one or two (but no more) experts and "trusting" them all the time.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1680.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1680
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  1. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  2. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  3. Pitchik, Carolyn & Schotter, Andrew, 1987. "Honesty in a Model of Strategic Information Transmission," American Economic Review, American Economic Association, vol. 77(5), pages 1032-36, December.
  4. Krishna, V. & Morgan, J., 1999. "A Model of Expertise," Papers 206, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Asher Wolinsky, 1991. "Competition in a Market for Informed Experts' Services," Discussion Papers 959, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
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  8. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  9. Jeong-Yoo Kim, 1996. "Cheap Talk and Reputation in Repeated Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 787-802, Winter.
  10. Blume Andreas, 1994. "Equilibrium Refinements in Sender-Receiver Games," Journal of Economic Theory, Elsevier, vol. 64(1), pages 66-77, October.
  11. Wolfgang Pesendorfer & Asher Wolinsky, 2003. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 417-437, 04.
  12. Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, vol. 81(3), pages 393-421, September.
  13. Benabou, Roland & Laroque, Guy, 1992. "Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 921-58, August.
  14. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  15. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  16. Park, In-Uck, 1997. "Generic Finiteness of Equilibrium Outcome Distributions for Sender-Receiver Cheap-Talk Games," Journal of Economic Theory, Elsevier, vol. 76(2), pages 431-448, October.
  17. Lipman Barton L. & Seppi Duane J., 1995. "Robust Inference in Communication Games with Partial Provability," Journal of Economic Theory, Elsevier, vol. 66(2), pages 370-405, August.
  18. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  19. Stephen Morris, 1998. "An Instrumental Theory of Political Correctness," Discussion Papers 1209, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
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