Should the Flatterers be Avoided?
We analyze a dynamic career concerns game between an expert and a decision maker. In each period, the decision maker has the option of obtaining cheap-talk advice from the expert, who is merely interested in his continued employment. The expert's quality is initially unknown to both parties. The incentive problem is that the expert might attempt to avoid appearing uninformed by concealing his true opinion if it contradicts the predominant view. Nevertheless, if a competent expert never makes mistakes, the fully revealing first-best outcome can be implemented provided the time horizon is sufficiently long. For shorter time horizons, the optimal equilibrium in this case features a grace period during which the expert accumulates some private information about his quality.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
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- Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
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