"Pandering to Persuade"
American Economic Review,
Volume: 103 | Issue: 1 | Pages: 47-79
Publication type: Journal article
Research Archive Topic: Business Economics and Public Policy
An agent advises a principal on selecting one of multiple projects or an outside option. The agent is privately informed about the projects' benefits and shares the principal's preferences except for not internalizing her value from the outside option. We show that for moderate outside option values, strategic communication is characterized by pandering: the agent biases his recommendation toward "conditionally better-looking" projects, even when both parties would be better of with some other project. A project that has lower expected value can be conditionally better-looking. We develop comparative statics and implications of pandering. Pandering is also induced by an optimal mechanism without transfers.
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