A New Approach to The Complexity of Decision Problems

A new measure of the complexity of optimal economic decisions is introduced. It is based on the level of detail of information (no information; ordinal; and cardinal information) that is required to establish optimality. A detailed example involving sequential group decision making is provided. It is shown that the type of links between successive agents determines the degree of complexity. The measure is also illustrated in the realm of matching problems

Is Transparency to no avail? Committee Decision-making, Pre-meetings, and Credible Deals

Transparent decision-making processes are widely regarded as a prerequisite for the working of a representative democracy. It facilitates accountability, and citizens may suspect that decisions, if taken behind closed doors, do not promote their interests. Why else the secrecy? We provide a model of committee decision-making that explains the public’s demand for transparency, and committee members’ aversion to it. In line with case study evidence, we show how pressures to become transparent induce committee members to organize pre-meetings away from the public eye. Outcomes of pre-meetings are less determined, more anarchic, than those of formal meetings, but within bounds. We characterize feasible deals that are credible and will be endorsed in the formal meeting

Learning from others? Decision rights, strategic communication, and reputational concerns

We examine centralized versus decentralized decision making when experience of agents is private information and communication is necessary to learn from others. An agent has reputational concerns and his market may or may not observe what the other agent chooses (global versus local markets). With decentralized decision making, agents' willingness to communicate depends heavily on what a market observes. Strikingly, less communication may improve welfare. If markets are global, centralization outperforms decentralization as it makes communication possible, and communication is informative for any finite degree of conflict among agents and with the center

Optimal signaling with cheap talk and money burning

We study Sender-optimal signaling equilibria with cheap talk and money-burning. Under general assumptions, the Sender never uses money-burning to reveal all states, but always wants to garble information for at least some states. With quadratic preferences and any log-concave density of the states, optimal communication is garbled for all states: money-burning, if used at all, is used to adjust pooling intervals. This is illustrated by studying in depth the well-known uniform-quadratic case. We also show how the presence of a cost of being “caught unprepared” that gives rise to a small change in a common assumption on the Receiver’s utility function makes full revelation through money-burning Sender-optimal

The consequences of endogenizing information for the performance of a sequential decision procedure

We analyse the implications of endogenizing information collection and reputational concerns for the performance of a sequential decision structure. In this model, two agents decide in a sequence whether to implement a public project. The cost of gathering information is private. We derive two results. First, endogenizing information replaces the herding problem with a free-rider problem. Second, endogenizing information aggravates the distortionary effect of reputational concerns

Delegation or Voting

Collective decision procedures should balance the incentives they provide to acquire information and their capacity to aggregate private information. In a decision problem in which a project can be accepted or rejected once information about its quality has been acquired or not, we compare the performance of a delegation structure with that of two voting procedures. Delegation makes one's acceptance decision pivotal by definition. The decisiveness of one's vote in a voting procedure depends on the other agent's vote. This in turn determines the decision to acquire information. In the debate about a rational choice foundation of Condorcet's Jury Theorem, the distribution of information was left exogenous. Mixed (acceptance) strategies were required to validate th

Sharing Information through Delegation and Collaboration

This article analyzes under which conditions a manager can motivate a junior worker by verbal communication, and explains why communication is often tied up with organizational choices as job enlargement and collaboration. Our model has two important features. First, the manager has more information about a junior's ability than the junior himself. Second, the junior's effort and ability are complements. We show that the manager has an incentive to exaggerate the junior's ability. We discuss two ways in which the manager can make credible statements about the junior's ability. First, the senior can delegate a task to the junior for which it is important that the junior has a correct perception of his ability. Information is shared through a costless signal. Second, the senior can spend more time on a junior she perceives as able than on a junior she perceives as less able. Information is then shared through a costly signal

On Committees of Experts

We consider a committee that makes a decision on a project on behalf of 'the public'. Members of the committee agree on the a priori value of the project, and hold additional private information about its consequences. They are experts who care both about the value of the project and about being considered well informed. Before voting on the project, members can exchange their private information simultaneously (so no herding). We show that reputational concerns make the a priori unconventional decision more attractive and lead committees to show a united front. These results hold irrespective of whether information can be manipulated or not. Next, we show that reputational concerns induce members to manipulate information and vote strategically if their preferences differ considerably from those of the member casting the decisive vote. Our last result is that the optimal voting rule balances the quality of information exchange and th

An Optimal Signaling Equilibrium

This paper analyses the optimal combination of costly and costless messages that a Sender uses in a signaling game if he is able to choose among all equilibrium communication strategies. We provide a complete characterization of the equilibrium that maximizes the Sender's ex ante expected utility in case of uniformly distributed types and quadratic loss functions. First, the Sender often wants to avoid money burning by using the most informative cheap talk communication strategy. Second, if he does burn money, he avoids separation and only re-arranges the existing intervals of the most informative cheap talk equilibrium, possibly adding one extra interval. Money burning takes place in the second interval only

Do Elections lead to Informed Public Decisions?

Democracies delegate substantial decision power to politicians. Using a model in which an incumbent can design, examine and implement public policies, we show that examination takes place in spite of, rather than thanks to, elections. Elections are needed as a carrot and a stick to motivate politicians, yet politicians who are overly interested in re-election shy away from policy examination. Our analysis sheds light on the distance created in mature democracies between the political process and the production of policy relevant information; on the role played by probing into candidates' past; and on the possibility of crowding out desirable political behaviour by increasing the value of holding office