Sequential Solicitation of Costly Information

Speaker: Shen Ziyang  

Venue: Tencent Meeting-193-270-879(Online)

Abstract: A principal with private information asks agents to acquire costly information and make action recommendations. An agent is then hired to implement his recommendation on the principal's behalf. The principal wants the right action to be executed, while the agents want to get hired. The optimal mechanism for inducing information acquisition involves approaching agents sequentially without revealing any history and hiring as soon as possible. An agent's incentive problem features what we call the pivotality effect: in situations where the agent's report is pivotal, he may misreport to improve his chance of being hired. When the principal and the agents agree about the precision of her private information, this effect is weak, and both information acquisition and truthful reporting can be fully achieved when the cost of information acquisition is small. When the principal is overconfident about her signal precision, the pivotality effect is amplified, and adverse selection can arise even when the cost is arbitrarily small. Two remedies restore truthful reporting: consulting enough agents, and separating advice from execution.