Biased Experts, Costly Lies, and Binary Decisions

Roland Hodler, Simon Loertscher and Dominic Rohner

No 10.01, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: Decision makers lacking crucial specialist know-how often consult with better informed but biased experts. In our model the decision maker’s choice problem is binary and her preferred option depends on the state of the world unknown to her. The expert observes the state and sends a report to the decision maker. His bias is such that he prefers the same decision for all states. Lying about the state leads to a cost that increases in the size of the lie. As a function of the size of the expert’s bias and the decision maker’s prior about the underlying state, three kinds of equilibrium behavior occur. In each case equilibrium consists of separating and pooling segments, and the decision maker takes the expert’s preferred decision for some states for which she would not take this decision had she observed the state herself. The model has a variety of applications and extends to situations in which the decision maker may be naive and take the report by its face value, and to situations with multiple experts and uncertainty about the size of the expert’s bias.

Pages: 37 pages
Date: 2010-07
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.szgerzensee.ch/fileadmin/Dateien_Anwend ... g_papers/wp-1001.pdf Full text (application/pdf)
None

Related works:
Working Paper: Biased experts, costly lies, and binary decisions (2010)
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:szg:worpap:1001

Ordering information: This working paper can be ordered from
Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee

The price is Free.

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank, Study Center Gerzensee Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee.
Bibliographic data for series maintained by library ().