Sequential decisions with tests

David Gill and Daniel Sgroi

Games and Economic Behavior, 2008, vol. 63, issue 2, 663-678

Abstract: We consider a principal-agent problem where the principal wishes to be endorsed by a sequence of agents, but cannot truthfully reveal type. In the standard "herding" model, the agents learn from each other's decisions, which can lead to cascades on a given decision when later agents' private information is swamped. We augment the standard model to allow the principal to subject herself to a test designed to provide public information about her type. She must decide how tough a test to attempt from a continuum of test types, which involves trading off the higher probability of passing an easier test against the greater impact from passing a tougher test. We find that the principal will always choose to be tested, and will prefer a tough test to a neutral or easy one.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899-8256(06)00097-2
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Sequential Decisions with Tests (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:63:y:2008:i:2:p:663-678

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().