Would I Lie to You? Project selection with biased advice
57 Pages Posted: 19 Dec 2019 Last revised: 27 Apr 2023
There are 2 versions of this paper
Would I Lie to You? Project selection with biased advice
Would I Lie to You? Project Selection with Biased Advice
Date Written: April 27, 2023
Abstract
When agents with private information compete for resources from an uninformed decision-maker and are biased towards their own favored projects (e.g., a CEO decides which division manager’s project to fund), they have incentive to strategically communicate about their project's value. However, possible future interaction can mitigate this problem even without reputational concerns, since an agent who induces acceptance of a low-valued project today consumes resources that crowd out better opportunities that may arrive in the future. We study this organizational environment both theoretically and empirically using laboratory experiments. We hypothesize and find that truth telling is easier to support as low-quality projects lose value or become more likely to occur, but harder to support as agent competition grows. We see an interesting behavioral result in which beliefs influence responsiveness to parameter changes. Specifically, as agents grow more pessimistic about the likelihood of truthful reporting by their competitors, they respond more sharply to parameter changes, in line with the model's predictions.
Keywords: cheap talk, multiple senders, project selection
JEL Classification: D82, G31
Suggested Citation: Suggested Citation