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Biased Recommendations

Author

Listed:
  • Wonsuk Chung

    (Department of Economics, Indiana University)

  • Rick Harbaugh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

We develop and experimentally test a discrete choice model of an expert who recommends one of multiple actions to a decision maker who might take no action. Consistent with the recent theoretical literature on cheap talk recommendations, we find that recommendations are "persuasive" in that they reduce the chance that the decision maker takes no action, that recommendations for an action the expert benefits more from are "discounted", that lack of "transparency" about expert incentives undermines communication by both biased and unbiased experts, and that experts "pander" to the perceived preferences of the decision maker.

Suggested Citation

  • Wonsuk Chung & Rick Harbaugh, 2012. "Biased Recommendations," Working Papers 2012-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2012-02
    as

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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2012-02-chung-harbaugh.pdf
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    References listed on IDEAS

    as
    1. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July.
    2. Roland Hodler & Simon Loertscher & Dominic Rohner, 2010. "Biased Experts, Costly Lies, and Binary Decisions," Working Papers 10.01, Swiss National Bank, Study Center Gerzensee.
    3. Morgan, John & Stocken, Phillip C, 2003. " An Analysis of Stock Recommendations," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 183-203, Spring.
    4. Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    5. Sanchez-Pages, Santiago & Vorsatz, Marc, 2007. "An experimental study of truth-telling in a sender-receiver game," Games and Economic Behavior, Elsevier, vol. 61(1), pages 86-112, October.
    6. Yeon-Koo Che & Wouter Dessein & Navin Kartik, 2013. "Pandering to Persuade," American Economic Review, American Economic Association, vol. 103(1), pages 47-79, February.
    7. Cai, Hongbin & Wang, Joseph Tao-Yi, 2006. "Overcommunication in strategic information transmission games," Games and Economic Behavior, Elsevier, vol. 56(1), pages 7-36, July.
    8. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
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    10. Blume, Andreas, et al, 1998. "Experimental Evidence on the Evolution of Meaning of Messages in Sender-Receiver Games," American Economic Review, American Economic Association, vol. 88(5), pages 1323-1340, December.
    11. Li, Ming & Madarász, Kristóf, 2008. "When mandatory disclosure hurts: Expert advice and conflicting interests," Journal of Economic Theory, Elsevier, vol. 139(1), pages 47-74, March.
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      • Archishman Chakraborty & Rick Harbaugh, 2004. "Comparative Cheap Talk," Working Papers 2004-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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    29. repec:pit:wpaper:401 is not listed on IDEAS
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    Cited by:

    1. Sobel, Joel, 2013. "Ten possible experiments on communication and deception," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 408-413.

    More about this item

    Keywords

    cheap talk; discrete choice; deception; persuasion; discounting; transparency; pandering;

    JEL classification:

    • L0 - Industrial Organization - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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