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Biased Recommendations

  • Wonsuk Chung

    (Department of Economics, Indiana University)

  • Rick Harbaugh

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

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.

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File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2012-02-chung-harbaugh.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2012-02.

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Date of creation: Apr 2012
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Handle: RePEc:iuk:wpaper:2012-02
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  1. Matthias Sutter, 2007. "Deception through telling the truth?! Experimental evidence from individuals and teams," Working Papers 2007-26, Faculty of Economics and Statistics, University of Innsbruck.
  2. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  3. Inderst, Roman & Ottaviani, Marco, 2009. "Misselling through agents," IMFS Working Paper Series 36, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  4. 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.
  5. Santiago Sanchez-Pages & Marc Vorsatz, 2004. "An Experimental Study of Truth-Telling in a Sender-Receiver Game," ESE Discussion Papers 128, Edinburgh School of Economics, University of Edinburgh.
  6. 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.
  7. 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 1323-40, December.
  8. Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
  9. Yeon-Koo Che & Wouter Dessein & Navin Kartik, 2010. "Pandering to Persuade," Levine's Bibliography 661465000000000197, UCLA Department of Economics.
  10. Mark Armstrong & John Vickers & Jidong Zhou, 2008. "Prominence and Consumer Search," Economics Series Working Papers 379, University of Oxford, Department of Economics.
  11. Chakraborty, Archishman & Harbaugh, Rick, 2007. "Comparative cheap talk," Journal of Economic Theory, Elsevier, vol. 132(1), pages 70-94, January.
    • 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.
  12. Mark Armstrong & Jidong Zhou, 2011. "Paying for Prominence," Economic Journal, Royal Economic Society, vol. 121(556), pages F368-F395, November.
  13. Roland Hodler & Simon Loertscher & Dominic Rohner, 2010. "Biased Experts, Costly Lies, and Binary Decisions," Working Papers 10.01, Swiss National Bank, Study Center Gerzensee.
  14. Navin Kartik, 2009. "Strategic Communication with Lying Costs," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1359-1395.
  15. 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.
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  17. Alistair Wilson & Emanuel Vespa, 2012. "Communication With Multiple Senders and Multiple Dimensions: An Experiment," Working Papers 461, University of Pittsburgh, Department of Economics, revised Sep 2012.
  18. Joseph Tao-yi Wang & Michael Spezio & Colin F. Camerer, 2010. "Pinocchio's Pupil: Using Eyetracking and Pupil Dilation to Understand Truth Telling and Deception in Sender-Receiver Games," American Economic Review, American Economic Association, vol. 100(3), pages 984-1007, June.
  19. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
  20. Marco Battaglini, 2000. "Multiple Referrals and Multidimensional Cheap Talk," Econometric Society World Congress 2000 Contributed Papers 1557, Econometric Society.
  21. Archishman Chakraborty & Rick Harbaugh, 2006. "Persuasion by Cheap Talk," Working Papers 2006-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy, revised Oct 2009.
  22. Gilat Levy & Ronny Razin, 2007. "On the Limits of Communication in Multidimensional Cheap Talk: A Comment," Econometrica, Econometric Society, vol. 75(3), pages 885-893, 05.
  23. Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  24. Roman Inderst & Marco Ottaviani, 2009. "Misselling through Agents," American Economic Review, American Economic Association, vol. 99(3), pages 883-908, June.
  25. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
  26. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, vol. 102(2), pages 780-809, April.
  27. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  28. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
  29. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
  30. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  31. Abbink, Klaus & Sadrieh, Abdolkarim, 2009. "The pleasure of being nasty," Economics Letters, Elsevier, vol. 105(3), pages 306-308, December.
  32. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages F309-F328, November.
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