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Vague lies and lax standards of proof: On the law and economics of advice

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  • Mikhail Drugov
  • Marta Troya‐Martinez

Abstract

This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.

Suggested Citation

  • Mikhail Drugov & Marta Troya‐Martinez, 2019. "Vague lies and lax standards of proof: On the law and economics of advice," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(2), pages 298-315, April.
    • Handle: RePEc:bla:jemstr:v:28:y:2019:i:2:p:298-315
    DOI: 10.1111/jems.12279
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    4. Andrew Rhodes & Chris M. Wilson, 2018. "False advertising," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 348-369, June.
    5. Grunewald, Andreas & Kräkel, Matthias, 2017. "Fake News," IZA Discussion Papers 11207, Institute of Labor Economics (IZA).
    6. Janssen, Maarten & Roy, Santanu, 2017. "Regulating False Disclosure," CEPR Discussion Papers 12450, C.E.P.R. Discussion Papers.
    7. Yasui, Yuta, 2021. "Controlling Fake Reviews," MPRA Paper 108177, University Library of Munich, Germany.
    8. Janssen, Maarten, 2017. "Regulating False Discloure," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168159, Verein für Socialpolitik / German Economic Association.
    9. Rhodes, Andrew, 2023. "A Survey on Drip Pricing and Other False Advertising," TSE Working Papers 23-1434, Toulouse School of Economics (TSE).
    10. Kemal Kıvanç Aköz & Cemal Eren Arbatli & Levent Celik, 2020. "Manipulation Through Biased Product Reviews," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 591-639, December.

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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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