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When Second Opinions Hurt: a Model of Expert Advice under Career Concerns

Liu, Yaozhou Franklin and Sanyal, Amal (2011): When Second Opinions Hurt: a Model of Expert Advice under Career Concerns.

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Abstract

We develop a reputational cheap talk model where the principal can cancel an action initially started on the advice of an expert if she gets an unfavorable interim news. But if the status quo is reinstated, the principal is unable to verify the true state of the world. In the model, experts want to appear smart and we nd that the possibility of canceling the action encourages less well informed experts to recommend it more often. We then show that gaining access to an interim news as well as improving the quality of an existing one can both reduce the principal's welfare. The model implies that delegating the decision rights to another person with dierent preferences can be used as a commitment device by the principal and might improve her welfare.

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