Skip to main content
Article thumbnail
Location of Repository

Sequential decisions with tests

By Daniel Sgroi and David Gill

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\ud 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

Topics: HC
Publisher: Elsevier
Year: 2008
OAI identifier: oai:wrap.warwick.ac.uk:44

Suggested articles

Citations

  1. (2004). A Model of Forum Shopping, with Special Reference to Standard Setting Organizations. doi
  2. (1992). A Theory of Fads, Fashion, Custom and Cultural Change as Informational Cascades. doi
  3. (2005). Certifying New Technologies. doi
  4. (2005). Dynamic Monopoly Pricing and Herding. doi
  5. (2002). Optimizing Information in the Herd: Guinea Pigs, Profits and Welfare. doi
  6. (2003). Product Launches with Biased Reviewers: The Importance of Not Being Earnest. Cambridge Working Papers in Economics 0334.
  7. (2004). Rational Herds: Economic Models of Social Learning. doi
  8. (2001). Strategic Certification and Provision of Quality. doi
  9. (1986). The Architecture of Economic Systems: Hierarchies and Polyarchies. doi
  10. (2005). The Rules of Standard Setting Organizations: An Empirical Analysis. doi
  11. (2004). The Superiority of Biased Reviewers in a Model of Simultaneous Sales.
  12. (1985). The Value of Biased Information: A Rational Choice Model of Political Advice. doi
  13. (2001). The Value of Public Information in Monopoly. doi
  14. (1999). Time-on-the-Market as a Sign of Quality. doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.