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Too good to be truthful: Why competent advisers are fired

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  • Schottmüller, Christoph

Abstract

A decision maker repeatedly asks an adviser for advice. The adviser is either competent or incompetent and knows his type privately. His preferences are not perfectly aligned with the decision maker's preferences. Over time, the decision maker learns about the adviser's type and will fire him if the adviser is likely to be incompetent. If the adviser's reputation for competence improves, he is less likely to be fired for incompetence but this makes pushing his own agenda more attractive to him. Consequently, very competent advisers are also fired with positive probability because they are tempted to pursue their own goals. The quality of advice can be highest if the adviser's competence is uncertain.

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  • Schottmüller, Christoph, 2019. "Too good to be truthful: Why competent advisers are fired," Journal of Economic Theory, Elsevier, vol. 181(C), pages 333-360.
    • Handle: RePEc:eee:jetheo:v:181:y:2019:i:c:p:333-360
    DOI: 10.1016/j.jet.2019.03.006
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    Cited by:

    1. Schottmüller, Christoph, 2019. "Too good to be truthful: Why competent advisers are fired," Journal of Economic Theory, Elsevier, vol. 181(C), pages 333-360.
    2. Lukyanov, Georgy, 2023. "Reputation for competence in a cheap-talk setting," Research in Economics, Elsevier, vol. 77(3), pages 285-294.
    3. Maxime Menuet & Patrick Villieu, 2021. "Reputation and the “need for enemies”," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1049-1089, November.

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    More about this item

    Keywords

    Advice; Cheap talk; Reputation;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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