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Sequential decisions with tests
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Sgroi, Daniel and Gill, David (2008) Sequential decisions with tests. Games and economic behavior, Vol.36 (No.2). pp. 663-678. doi:10.1016/j.geb.2006.07.004 ISSN 0899-8256.
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Official URL: http://dx.doi.org/10.1016/j.geb.2006.07.004
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
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.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Decision making, Bayesian statistical decision theory | ||||
Journal or Publication Title: | Games and economic behavior | ||||
Publisher: | Elsevier | ||||
ISSN: | 0899-8256 | ||||
Official Date: | July 2008 | ||||
Dates: |
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Volume: | Vol.36 | ||||
Number: | No.2 | ||||
Page Range: | pp. 663-678 | ||||
DOI: | 10.1016/j.geb.2006.07.004 | ||||
Status: | Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Funder: | Economic and Social Research Council (Great Britain) (ESRC), AEA Technology (Firm) |
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