Independent versus Collective Expertise
50 Pages Posted: 11 Jun 2019
Date Written: May 25, 2019
We consider the problem of a decision-maker who seeks for advice from reputation-concerned experts. The experts have herding incentives when their prior belief about the state of the world is sufficiently strong. We address the following question: Should experts be allowed to exchange their information before providing advice ("collective expertise") or not ("independent expertise")? Allowing for such information exchange modifies the herding incentives in a non-trivial way. The effect is beneficial for the quality of advice when there is low prior uncertainty about the state and detrimental in the opposite case. We also show that independent expertise is more likely to be optimal when the decision-maker has a valuable enough "safe" option with a state-independent payoff. Finally, collective expertise is more likely to be optimal as the number of experts grows.
Keywords: information aggregation, reputation, cheap talk
JEL Classification: D82, D83
Suggested Citation: Suggested Citation