Professional Advice

University College London, Department of Economics Working Paper No. 99-04

28 Pages Posted: 11 Aug 1999

See all articles by Marco Ottaviani

Marco Ottaviani

Bocconi University - Department of Economics

Peter Norman Sorensen

University of Copenhagen - Department of Economics

Date Written: November 5, 1999

Abstract

Professional experts offer advice with the objective of appearing well informed. Their ability is evaluated on the basis of the advice given and the realized state of the world. We model this situation as a reputational cheap-talk game with continuous signal, state, and ability type spaces. Despite allowing a message space as rich as the signal space, at best two messages are sent in the most informative equilibrium. The expert can credibly transmit only the direction but not the intensity of the information possessed. Equilibrium forecasts are then systematically less precise than under truthtelling, and learning on the expert's ability is slow.

JEL Classification: D72, D82, D83, G20, J30

Suggested Citation

Ottaviani, Marco and Sorensen, Peter Norman, Professional Advice (November 5, 1999). University College London, Department of Economics Working Paper No. 99-04, Available at SSRN: https://ssrn.com/abstract=169394 or http://dx.doi.org/10.2139/ssrn.169394

Marco Ottaviani (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Peter Norman Sorensen

University of Copenhagen - Department of Economics ( email )

Oster Farimagsgade 5
Building 26
Copenhagen K, 1353
Denmark
+45 35 32 3056 (Phone)

HOME PAGE: http://www.econ.ku.dk/sorensen

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