Professional advice

TY - JOUR

T1 - Professional advice

AU - Ottaviani, Marco

AU - Sørensen, Peter Norman

N1 - JEL Classification: D82, D83, D72

PY - 2006

Y1 - 2006

N2 - This paper studies strategic communication by an expert who is concerned about appearing to be well informed. The expert is assumed to observe a private signal with a simple and particularly tractable (multiplicative linear) structure. The quality of the expert's information is evaluated on the basis of the advice given and the realized state of the world. In equilibrium of this reputational cheap-talk game, no more than two messages are effectively reported. The model is extended to consider sequential communication by experts with conditionally independent signals. In the long run, learning is incomplete and herd behavior arises

AB - This paper studies strategic communication by an expert who is concerned about appearing to be well informed. The expert is assumed to observe a private signal with a simple and particularly tractable (multiplicative linear) structure. The quality of the expert's information is evaluated on the basis of the advice given and the realized state of the world. In equilibrium of this reputational cheap-talk game, no more than two messages are effectively reported. The model is extended to consider sequential communication by experts with conditionally independent signals. In the long run, learning is incomplete and herd behavior arises

KW - Faculty of Social Sciences

KW - reputation

KW - cheap talk

KW - herding

U2 - 10.1016/j.jet.2004.08.005

DO - 10.1016/j.jet.2004.08.005

M3 - Journal article

SN - 0022-0531

VL - 126

SP - 120

EP - 142

JO - Journal of Economic Theory

JF - Journal of Economic Theory

IS - 1

ER -