Biased Motivation of Experts: Should They be Aggressive or Conservative?
When we intend to hire a professional expert, which type of expert should we hire? Although it is sometimes claimed that decisions of experts tend to be conservative, is it optimal to choose a conservative expert? This paper attempts to answer these questions. It will show that a principal should hire a conservative expert, i.e., an expert who has biased preference for maintaining the status quo. The crucial aspect is that there is a possibility that the expert may not transmit truthful information. A neutral expert or an expert who has biased preference for implementing the project has a very strong incentive to recommend the project. Even when he/she cannot recognize whether the project is sufficiently productive, he may recommend the project. Hence, a conservative expert is considered to be beneficial for the principal.
|Date of creation:||Sep 2008|
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- Hao Li, 2001. "A Theory of Conservatism," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 617-636, June.
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- John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, 02. Full references (including those not matched with items on IDEAS)
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