Good Lies

Working Paper Series 39, Economics Discipline Group, UTS Business School, University of Technology, Sydney

64 Pages Posted: 4 May 2017 Last revised: 19 Oct 2017

See all articles by Filippo Pavesi

Filippo Pavesi

Università Carlo Cattaneo (LIUC) - Institute of Economics; Stevens Institute of Technology - School of Business

Massimo Scotti

University of Technology Sydney

Date Written: May 1, 2017

Abstract

Decision makers often face uncertainty both about the ability and the integrity of their advisors. If an expert is sufficiently concerned about establishing a reputation for being skilled and unbiased, she may truthfully report her private information about the decision-relevant state. However, while in a truthtelling equilibrium the decision maker learns only about the ability of the expert, in an equilibrium with some misreporting the decision maker also learns about the expert’s bias. Although truthful behavior allows for more informed current decisions, it may lead to worst sorting. Therefore, if a decision maker places enough weight on future choices relative to present ones, lying may be welfare improving.

Keywords: Experts; Reputation; Cheap Talk; Conflicts of Interest; Information Transmission; Welfare; Lies

JEL Classification: C72, D82, D83

Suggested Citation

Pavesi, Filippo and Scotti, Massimo, Good Lies (May 1, 2017). Working Paper Series 39, Economics Discipline Group, UTS Business School, University of Technology, Sydney. Available at SSRN: https://ssrn.com/abstract=2962561 or http://dx.doi.org/10.2139/ssrn.2962561

Filippo Pavesi (Contact Author)

Università Carlo Cattaneo (LIUC) - Institute of Economics ( email )

21053 Castellanza (VA)
Italy

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Massimo Scotti

University of Technology Sydney ( email )

15 Broadway, Ultimo
Sydney
Australia

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