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Sequential decisions with tests

Gill, David and Sgroi, Daniel (2006) Sequential decisions with tests Games and Economic Behavior, pp. 1-16. (doi:10.1016/j.geb.2006.07.004).

Record type: Article

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.

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More information

Published date: 14 September 2006
Keywords: bayesian updating, endorsements, herding, sequential decision-making, tests

Identifiers

Local EPrints ID: 47659
URI: http://eprints.soton.ac.uk/id/eprint/47659
ISSN: 0899-8256
PURE UUID: 2da2ff92-7ad6-49ad-8ac3-d10e40db80a9

Catalogue record

Date deposited: 07 Aug 2007
Last modified: 17 Jul 2017 15:03

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Contributors

Author: David Gill
Author: Daniel Sgroi

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