Biased Motivation of Experts: Should They be Aggressive or Conservative?

Noriyuki Yanagawa
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Noriyuki Yanagawa: Faculty of Economics, University of Tokyo

No CARF-F-133, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: 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.

Pages: 24 pages
Date: 2008-09
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf133

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