Optimally Biased Expertise

CERGE-EI Working Paper Series No. 736

53 Pages Posted: 19 Oct 2022 Last revised: 30 May 2023

See all articles by Pavel Ilinov

Pavel Ilinov

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Andrei Matveenko

University of Mannheim - Department of Economics

Maxim Senkov

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Egor Starkov

University of Copenhagen - Department of Economics

Date Written: May 18, 2023

Abstract

This paper shows that in delegation problems, a biased principal can strictly benefit from hiring an agent with misaligned preferences or beliefs. We consider a ``delegated expertise'' problem in which the agent has an advantage in acquiring information relative to the principal. We show that it is optimal for a principal who is ex ante biased towards one action to select an agent who is less biased. Such an agent is more uncertain ex ante about what the best course of action is and would acquire more information. The benefit to the principal from a more informed decision always outweighs the cost of a small misalignment. Further, we show that selecting an optimally misaligned agent is a valuable tool, which performs on par with optimal contracting (while imposing no additional cost on the principal) and outperforms restricted delegation. Finally, we show that all results continue to hold if the agent has to recommend an action instead of being able to choose it directly.

Keywords: delegation, rational inattention, heterogeneous beliefs, discrete choice

JEL Classification: D82, D83, D91, M51

Suggested Citation

Ilinov, Pavel and Matveenko, Andrei and Senkov, Maxim and Starkov, Egor, Optimally Biased Expertise (May 18, 2023). CERGE-EI Working Paper Series No. 736, Available at SSRN: https://ssrn.com/abstract=4231595 or http://dx.doi.org/10.2139/ssrn.4231595

Pavel Ilinov (Contact Author)

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )

Politickych veznu 7
Prague, 111 21
Czech Republic

Andrei Matveenko

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Maxim Senkov

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )

Politickych veznu 7
Prague, 111 21
Czech Republic

Egor Starkov

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

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