Advising with Threshold Tests: Complexity, Signaling, and Effort

Georgy Lukyanov () and Mark Izgarshev

Papers from arXiv.org

Abstract: A benevolent advisor observes a project's complexity and posts a pass - fail threshold before the agent chooses effort. The project succeeds only if ability and effort together clear complexity. We compare two informational regimes. In the naive regime, the threshold is treated as non-informative; in the sophisticated regime, the threshold is a signal and the agent updates beliefs. We characterize equilibrium threshold policies and show that the optimal threshold rises with complexity under mild regularity. We then give primitives-based sufficient conditions that guarantee separating, pooling, or semi-separating outcomes. In a benchmark with uniform ability, exponential complexity, and power costs, we provide explicit parameter regions that partition the space by equilibrium type; a standard refinement eliminates most pooling. The results yield transparent comparative statics and welfare comparisons across regimes.

Date: 2025-08, Revised 2025-09
New Economics Papers: this item is included in nep-gth and nep-mic
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