Experts and Their Records

36 Pages Posted: 29 Apr 2009 Last revised: 10 Apr 2022

See all articles by Alexander P. Frankel

Alexander P. Frankel

Chicago Booth

Michael Schwarz

Yahoo! - Yahoo! Research Labs; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2009

Abstract

Consider an environment where long-lived experts repeatedly interact with short-lived customers. In periods when an expert is hired, she chooses between providing a profitable major treatment or a less profitable minor treatment. The expert has private information about which treatment best serves the customer, but has no direct incentive to act in the customer's interest. Customers can observe the past record of each expert's actions, but never learn which actions would have been appropriate. We find that there exists an equilibrium in which experts always play truthfully and choose the customer's preferred treatment. The expert is rewarded for choosing the less profitable action with future business: customers return to an expert with high probability if the previous treatment was minor, and low probability if it was major. If experts have private information regarding their own payoffs as well as what treatments are appropriate, then there is no equilibrium with truthful play in every period. But we construct equilibria where experts are truthful arbitrarily often as their discount factor converges to one.

Suggested Citation

Frankel, Alexander P. and Schwarz, Michael, Experts and Their Records (April 2009). NBER Working Paper No. w14921, Available at SSRN: https://ssrn.com/abstract=1394828

Alexander P. Frankel

Chicago Booth ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Michael Schwarz (Contact Author)

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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