Sequential Decisions with Tests

David Gill, Daniel Sgroi, Faculty of Economics and Churchill College and University of Cambridge

No 242, Economics Series Working Papers from University of Oxford, Department of Economics

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.

Keywords: Bayesian Updating; Endorsements; Herding; Sequential Decision-Making; Tests (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2005-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:446e09f9-1066-4d20-82be-ea51a63f3d8d (text/html)

Related works:
Journal Article: Sequential decisions with tests (2008)
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:oxf:wpaper:242

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).