How Better Information Can Reduce the Credibility of Experts' Advice

American Economic Review: Papers & Proceedings 2014, 104(5): 463–468 http://dx.doi.org/10.1257/aer.104.5.463

41 Pages Posted: 24 Nov 2010 Last revised: 6 Aug 2019

See all articles by Matthew Elliott

Matthew Elliott

Cambridge University

Benjamin Golub

Stanford Graduate School of Business

Andrei A. Kirilenko

University of Cambridge - Finance

Date Written: November 21, 2010

Abstract

Two experts make yes/no predictions about whether an event, such as an economic crisis, will occur. They receive private signals about the likelihood of the event that are much more informative than the coarse recommendations they can ultimately convey. The experts may care about both absolute and relative performance. We show that when both experts receive strictly better information, the error rates of their all their unanimous predictions in the new equilibrium may be higher than before the information improvement. This unintuitive phenomenon raises the question of how society can optimally incentivize such experts. We find that, without the possibility of huge transfers, society's ability to extract good advice or even to interpret imperfect advice is severely limited.

Keywords: Experts, Committee, Coarse Information, Delegation, Limited Liability, Commitment

JEL Classification: D71, D82, C72

Suggested Citation

Elliott, Matthew and Golub, Benjamin and Kirilenko, Andrei A., How Better Information Can Reduce the Credibility of Experts' Advice (November 21, 2010). American Economic Review: Papers & Proceedings 2014, 104(5): 463–468 http://dx.doi.org/10.1257/aer.104.5.463. Available at SSRN: https://ssrn.com/abstract=1713918 or http://dx.doi.org/10.2139/ssrn.1713918

Matthew Elliott (Contact Author)

Cambridge University ( email )

Faculty of Economics
Austin Robinson Building Sidgwick Avenue
Cambridge, CB39DD
United Kingdom

Benjamin Golub

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Andrei A. Kirilenko

University of Cambridge - Finance ( email )

Cambridge
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/faculty-a-z/andrei-kirilenko/

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