An Inexpert Expert

10 Pages Posted: 26 Jul 2022

See all articles by Jose Carrasco

Jose Carrasco

Escuela de Negocios, Universidad Adolfo Ibañez

Martin Carrasco

Universidad del Desarrollo

Rodrigo Yañez

University of Wisconsin - Madison - Department of Economics

Date Written: July 5, 2022

Abstract

We explore strategic information transmission when there is noise at the observation stage, when an expert observes signals, before he advises a policymaker. That is, the expert might be inexpert. We account for the fact that his signals might be totally uninformative, which is commonly known by players. We find that this inexpertise translates into a greater preference misalignment between players and that this yields a less informative equilibrium. We show that our results follow from the fact that the strategic effect of noise - the welfare change exclusive due to changes in the equilibrium partition - is always negative. Numerical simulations show that noise might be beneficial if the policymaker openly disagree about noise chances. This makes the point that whether noise is beneficial or not crucially depends on how early in the game it arises, and also whether noise chances are commonly known by players or not.

Keywords: Cheap Talk, Bias, Informativeness, Noise

JEL Classification: D23, D82

Suggested Citation

Carrasco, Jose and Carrasco, Martin and Yañez, Rodrigo, An Inexpert Expert (July 5, 2022). Available at SSRN: https://ssrn.com/abstract=4154806 or http://dx.doi.org/10.2139/ssrn.4154806

Jose Carrasco (Contact Author)

Escuela de Negocios, Universidad Adolfo Ibañez ( email )

2640, Peñalolen
Santiago
Chile

HOME PAGE: http://www.tonocarrasco.com

Martin Carrasco

Universidad del Desarrollo

Facultad de Econom ́ıa y Negocios
Av. Plaza 680, San Carlos de Apoquindo
Santiago, Las Condes 7550000
Chile

Rodrigo Yañez

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States

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