Vague Lies and Lax Standards of Proof: On the Law and Economics of Advice

18 Pages Posted: 11 Apr 2019

See all articles by Mikhail Drugov

Mikhail Drugov

Centre for Economic Policy Research (CEPR); New Economic School (NES)

Marta Troya‐Martinez

New Economic School (NES)

Multiple version iconThere are 2 versions of this paper

Date Written: Summer 2019

Abstract

This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.

Keywords: advice, consumer protection, legal procedure, persuasion

JEL Classification: D8, D18, K4, L1

Suggested Citation

Drugov, Mikhail and Troya‐Martinez, Marta, Vague Lies and Lax Standards of Proof: On the Law and Economics of Advice (Summer 2019). Journal of Economics & Management Strategy, Vol. 28, Issue 2, pp. 298-315, 2019, Available at SSRN: https://ssrn.com/abstract=3369868 or http://dx.doi.org/10.1111/jems.12279

Mikhail Drugov (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Marta Troya‐Martinez

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

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