Markets Assessing Decision Makers and Decision Makers Impressing Markets: a Lab Experiment

Sander Renes and Bauke Visser

No 18-070/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We experimentally investigate (i) whether markets accurately assess the ability of decision makers when these decision makers benefit from positive assessments and (ii) how decision makers use a costly decision and cheap-talk statements to impress markets. We focus on committees of decision makers to use their conversations as a source of information about their beliefs on the relationship between committee actions and assessments. We find that reputation concerns greatly reduce the amount of useful information markets can rely on. Markets realize this and make assessments less dependent on actual decisions and statements when assessments matter to decision makers. Within treatments, markets use the available information about ability quite efficiently. Reputation concerns make the modal cheap-talk strategy uninformative about ability. In a treatment without statements, committees turn to the decision on the project, a costly signal, to impress. Thus, distorted decisions are more frequent in the absence of the cheap-talk channel.

Keywords: reputation concerns; market assessments; committees; cheaptalk; united front; experiment (search for similar items in EconPapers)
JEL-codes: C91 D71 D83 D84 L14 (search for similar items in EconPapers)
Date: 2018-09-02, Revised 2019-05-03
New Economics Papers: this item is included in nep-cdm and nep-exp
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20180070

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