Reputation and Information Aggregation

48 Pages Posted: 6 Jun 2016 Last revised: 29 Aug 2017

See all articles by Emiliano Catonini

Emiliano Catonini

National Research University Higher School of Economics - International College of Economics and Finance

Sergey Stepanov

National Research University Higher School of Economics - Faculty of Economics; National Research University Higher School of Economics - International College of Economics and Finance

Date Written: August 28, 2017

Abstract

We analyze how reputation concerns for expertise of a partially informed decision maker affect her ability to extract information from reputation-concerned advisors. Very high reputation concerns of the decision maker destroy her incentives to seek advice. Yet, when such concerns are not high enough, the decision maker is tempted to ask for advice regardless of her private information, which can destroy advisors' truth-telling incentives. The optimal strength of the decision maker's reputation concerns maximizes advice-asking without undermining advisors' incentives. Thus, differently from most of the literature, we show how reputation concerns can improve efficiency through better aggregation of information. Prior uncertainty about the state of nature calls for a more reputation-concerned decision maker, unless the uncertainty becomes too high, in which case the reputation concerns become (almost) irrelevant. Finally, higher prior competence of the decision maker and/or advisors may worsen information aggregation through its impact on the advice-seeking incentives, if the reputation concerns are not properly adjusted.

Keywords: Reputation Concerns, Information Aggregation, Advice

JEL Classification: D82, D83

Suggested Citation

Catonini, Emiliano and Stepanov, Sergey, Reputation and Information Aggregation (August 28, 2017). Available at SSRN: https://ssrn.com/abstract=2790033 or http://dx.doi.org/10.2139/ssrn.2790033

Emiliano Catonini

National Research University Higher School of Economics - International College of Economics and Finance ( email )

ul. Shabolovka, 26
office 3431
Moscow, 119049
Russia

Sergey Stepanov (Contact Author)

National Research University Higher School of Economics - Faculty of Economics ( email )

Shabolovka 26
Moscow, 119049
Russia

National Research University Higher School of Economics - International College of Economics and Finance ( email )

Pokrovski Bulvar 11, Korpus Zh, Office 715
Moscow, 109028
Russia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
71
Abstract Views
530
rank
358,861
PlumX Metrics