39: Good Lies

Author(s):

Massimo Scotti Economics Discipline Group, UTS Business School, University of Technology, Sydney
Filippo Pavesi University of Verona

Date of publication: May 2017
 

Working paper number: 39

Abstract:

Decision makers often face uncertainty about the ability and the integrity of their
advisors. If an expert is sufficiently concerned about establishing a reputation for being
skilled and unbiased, she may truthfully report her private information about the
decision-relevant state. However, while in a truthtelling equilibrium the decision maker
learns only about the ability of the expert, in an equilibrium with some misreporting
she also learns about the expert’s bias. Although truthtelling allows for better current
decisions, it may lead to worse sorting outcomes. Therefore, if a decision maker is
sufficiently concerned about future choices, lying may be welfare improving.

Paper  Good Lies

Acknowledgement of Country

UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.