Good Lies

Decision makers often face uncertainty about the ability and the integrity of their advisors. If an expert is sufficiently concerned about establishing a reputation for being skilled and unbiased, she may truthfully report... [ view full abstract ]

Decision makers often face uncertainty about the ability and the integrity of their advisors. If an expert is sufficiently concerned about establishing a reputation for being skilled and unbiased, she may truthfully report her private information about the decision-relevant state. However, while in a truthtelling equilibrium the decision maker learns only about the ability of the expert, in an equilibrium with some misreporting she also learns about the expert’s bias. Although truthtelling allows for better current decisions, it may lead to worse sorting outcomes. Therefore, if a decision maker is sufficiently concerned about future choices, lying may be welfare improving.