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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. 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.
  3. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
  4. Blume, A., 1993. "Equilibrium Refinement in Sender-Receiver Games," Working Papers 93-06, University of Iowa, Department of Economics.
  5. Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Working Papers 154, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  6. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  7. Wolfgang Pesendorfer & Asher Wolinsky, 2000. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Discussion Papers 1306, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. 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.
  9. Stephen Morris, 1998. "An Instrumental Theory of Political Correctness," Discussion Papers 1209, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Marco Ottaviani & Peter Sorensen, 1999. "Professional Advice," Game Theory and Information 9906003, EconWPA.
  11. 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.
  12. Park, I.U., 1993. "Generic Finiteness of Equilibrium Outcome Distribution for Sender Receiver Cheap-Talk Games," Papers 269, Minnesota - Center for Economic Research.
  13. 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.
  14. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  15. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  16. Benabou, R. & Laroque, G., 1989. "Using Privileged Information To Manipulate Markets: Insiders, Gurus, And Credibility," Working papers 513, Massachusetts Institute of Technology (MIT), Department of Economics.
  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. 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.
  19. 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.
  20. 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.
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