NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Experts and Their Records

Alexander Frankel, Michael Schwarz

NBER Working Paper No. 14921
Issued in April 2009
NBER Program(s):   LS

Consider an environment where long-lived experts repeatedly interact with short-lived customers. In periods when an expert is hired, she chooses between providing a profitable major treatment or a less profitable minor treatment. The expert has private information about which treatment best serves the customer, but has no direct incentive to act in the customer's interest. Customers can observe the past record of each expert's actions, but never learn which actions would have been appropriate. We find that there exists an equilibrium in which experts always play truthfully and choose the customer's preferred treatment. The expert is rewarded for choosing the less profitable action with future business: customers return to an expert with high probability if the previous treatment was minor, and low probability if it was major.

If experts have private information regarding their own payoffs as well as what treatments are appropriate, then there is no equilibrium with truthful play in every period. But we construct equilibria where experts are truthful arbitrarily often as their discount factor converges to one.

download in pdf format
   (699 K)

email paper

This paper is available as PDF (699 K) or via email.

A data appendix is available at http://www.nber.org/data-appendix/w14921

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14921

Published: Experts and Their Records (with Michael Schwarz) Published: Economic Inquiry, January 2014 [52(1):56-71]

Users who downloaded this paper also downloaded these:
Lee and Schwarz w14922 Interviewing in Two-Sided Matching Markets
Skreta and Veldkamp w14761 Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us