Professional Advice: The Theory of Reputational Cheap Talk

No 02-05, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Professional experts offer advice with the objective of appearing well informed. Their ability is evaluated on the basis of the advice given and of the realized state of the world. This situation is modeled as a reputational cheap-talk game in which the expert receives a signal of continuously varying intensity with ability-dependent precision about a continuum of states. Despite allowing an arbitrarily rich message space, at most two messages are sent in equilibrium. The expert can only credibly transmit the direction but not the intensity of the information possessed. Equilibrium advice is then systematically less informative than under truthtelling.

Keywords: reputation; cheap talk; advice; herding (search for similar items in EconPapers)
JEL-codes: D72 D82 D83 G20 J30 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2002-07
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0205

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