CXO

Biased Experts, Costly Lies, And Binary Decisions

Date Added: Jul 2010
Format: PDF

Decision makers lacking crucial specialist know-how often consult with better informed but biased experts. In the model the decision maker's choice problem is binary and her preferred option depends on the state of the world unknown to her. The expert observes the state and sends a report to the decision maker. His bias is such that he prefers the same decision for all states. Lying about the state leads to a cost that increases in the size of the lie. As a function of the size of the expert's bias and the decision maker's prior about the underlying state, three kinds of equilibrium behavior occur.