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Too good to be truthful: Why competent advisers are fired

Christoph Schottmüller

No 16-10, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: A decision maker repeatedly asks an adviser for advice. The adviser is either competent or incompetent and his preferences are not perfectly aligned with the decision maker's preferences. Over time the decision maker learns about the adviser's type and fires him if he is likely to be incompetent. If the adviser's reputation for being competent improves, it is more attractive for him to push his own agenda because he is less likely to be fired for incompetence. Consequently, competent advisers are also fired with positive probability. Firing is least likely if the decision maker is unsure about the adviser's type.

Keywords: advice; cheap talk; reputation (search for similar items in EconPapers)
JEL-codes: C73 D83 G24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-hpe, nep-lab, nep-mic and nep-sog
Date: 2016-09-12
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