Second Opinions and Diagnostic Uncertainty in Expert Markets

Florian Baumann and Alexander Rasch

Journal of Institutional and Theoretical Economics (JITE), 2024, vol. 180, issue 1, 74-105

Abstract: Second opinions are often proposed as a disciplining device to mitigate fraudulent behavior by experts. However, inappropriate treatment recommendations may stem from diagnostic uncertainty or inaccuracy. We analyze expert and customer behavior in a situation in which diagnostic outcomes can be incorrect, and in which customers can decide to seek a second opinion. We find that if diagnostic uncertainty pertains to the identification of the minor problem, an increase in diagnostic quality may be offset by a greater frequency of fraudulent recommendations for major treatments, while the degree to which customers search for second opinions remains unchanged. If not all major problems can be accurately identified, comparative statics is more intricate.

Keywords: credencegood; diagnosis; expert; fraud; overtreatment; credence good (search for similar items in EconPapers)
JEL-codes: D82 L15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1628/jite-2023-0033

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