Biased Recommendations from Biased and Unbiased Experts

21 Pages Posted: 28 May 2020

See all articles by Rick Harbaugh

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University - Department of Economics

Wonsuk Chung

affiliation not provided to SSRN

Date Written: Fall 2019

Abstract

When can you trust an expert to provide honest advice? We develop and test a recommendation game where an expert helps a decision maker choose among two actions that benefit the expert and an outside option that does not. For instance, a salesperson recommends one of two products to a customer who may instead purchase nothing. Subject behavior in a laboratory experiment is largely consistent with predictions from the cheap talk literature. For sufficient symmetry in payoffs, recommendations are persuasive in that they raise the chance that the decision maker takes one of the actions rather than the outside option. If the expert is known to have a payoff bias toward an action, such as a salesperson receiving a higher commission on one product, the decision maker partiallydiscounts a recommendation for it and is more likely to take the outside option. If the bias is uncertain, then biased experts lie even more, whereas unbiased experts follow apolitical correctness strategy of pushing the opposite action so as to be more persuasive. Even when the expert is known to be unbiased, if the decision maker already favors an action the expertpanders toward it, and the decision maker partially discounts the recommendation. The comparative static predictions hold with any degree of lying aversion up to pure cheap talk, and most subjects exhibit some limited lying aversion. The results highlight that the transparency of expert incentives can improve communication, but need not ensure unbiased advice.

Keywords: cheap talk, pandering, persuasion, political correctness, transparency

Suggested Citation

Harbaugh, Rick and Chung, Wonsuk, Biased Recommendations from Biased and Unbiased Experts (Fall 2019). Journal of Economics & Management Strategy, Vol. 28, Issue 3, pp. 520-540, 2019, Available at SSRN: https://ssrn.com/abstract=3607396 or http://dx.doi.org/10.1111/jems.12293

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-2777 (Phone)
812-855-3354 (Fax)

HOME PAGE: http://www.bus.indiana.edu/riharbau/

Indiana University - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Wonsuk Chung (Contact Author)

affiliation not provided to SSRN

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