【经管院每周系列讲座第299期】Project Selection with Sequential Search and Cheap Talk

2016-06-14

Abstract: This paper analyzes a dynamic model where two agents sequentially search potential projects and make recommendations (cheap talk) to a decision maker. In every period exactly one agent is active, and the game ends if a project is adopted. Only the agent who searches the project observes the quality of the project. The two agents and the decision maker all care about the quality of the adopted project, but each agent also has an own-project bias. We study how the search rule, which determines which agent is active in a given period, affects equilibrium outcome. In the basic model with costless search, we show that competition between two agents (over time) always reduces the quality of communication and thus the optimal search rule for the decision maker is to let only one agent search. In the extended model with costly search and endogenized effort, letting two experts search could be optimal, as competition can induce higher search effort. Keywords: Multiple experts; Search; Cheap talk; Competition

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