Sequential decisions with tests
Gill, David and Sgroi, Daniel (2006) Sequential decisions with tests. Games and Economic Behavior, 1-16. (doi:10.1016/j.geb.2006.07.004).
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Description/Abstract
We consider a principal-agent problem where the principal wishes to be endorsed by a sequence of agents, but cannot truthfully reveal type. In the standard “herding” model, the agents learn from each other's decisions, which can lead to cascades on a given decision when later agents' private information is swamped. We augment the standard model to allow the principal to subject herself to a test designed to provide public information about her type. She must decide how tough a test to attempt from a continuum of test types, which involves trading off the higher probability of passing an easier test against the greater impact from passing a tougher test. We find that the principal will always choose to be tested, and will prefer a tough test to a neutral or easy one.
| Item Type: | Article |
|---|---|
| ISSNs: | 0899-8256 (print) |
| Related URLs: | |
| Keywords: | bayesian updating, endorsements, herding, sequential decision-making, tests |
| Subjects: | H Social Sciences > HB Economic Theory |
| Divisions: | University Structure - Pre August 2011 > School of Social Sciences |
| Item ID: | 47659 |
| Date Deposited: | 07 Aug 2007 |
| Last Modified: | 02 Mar 2012 11:30 |
| Contributors: | Gill, David (Author) Sgroi, Daniel (Author) |
| Date: | 14 September 2006 |
| Status: | Published |
| URI: | http://eprints.soton.ac.uk/id/eprint/47659 |
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