Department of Economics and Business Economics

Expert Advice, Control, and Heterogeneous Beliefs

Research output: Contribution to book/anthology/report/proceedingArticle in proceedingsResearchpeer-review

Standard

Expert Advice, Control, and Heterogeneous Beliefs. / de la Rosa, Leonidas Enrique.

2007 Oxford Business & Economics Conference. Association for Business and Economics Research, 2007.

Research output: Contribution to book/anthology/report/proceedingArticle in proceedingsResearchpeer-review

Harvard

de la Rosa, LE 2007, Expert Advice, Control, and Heterogeneous Beliefs. in 2007 Oxford Business & Economics Conference. Association for Business and Economics Research, Oxford Business & Economics Conference, Oxford, United Kingdom, 24/06/2007.

APA

de la Rosa, L. E. (2007). Expert Advice, Control, and Heterogeneous Beliefs. In 2007 Oxford Business & Economics Conference Association for Business and Economics Research.

CBE

de la Rosa LE. 2007. Expert Advice, Control, and Heterogeneous Beliefs. In 2007 Oxford Business & Economics Conference. Association for Business and Economics Research.

MLA

de la Rosa, Leonidas Enrique "Expert Advice, Control, and Heterogeneous Beliefs". 2007 Oxford Business & Economics Conference. Association for Business and Economics Research. 2007.

Vancouver

de la Rosa LE. Expert Advice, Control, and Heterogeneous Beliefs. In 2007 Oxford Business & Economics Conference. Association for Business and Economics Research. 2007

Author

de la Rosa, Leonidas Enrique. / Expert Advice, Control, and Heterogeneous Beliefs. 2007 Oxford Business & Economics Conference. Association for Business and Economics Research, 2007.

Bibtex

@inproceedings{ece28050f4b011dbbee902004c4f4f50,
title = "Expert Advice, Control, and Heterogeneous Beliefs",
abstract = "This paper studies the effects of overconfidence in an investment-decision setting. A risk-averse agent privately observes information relevant to an investment decision, that he can report to a principal. In a standard common-priors setting, the optimal contract provides full insurance to the agent: the principal pays a fixed wage to the agent, asks him to reveal his information, and implements the efficient investment rule. When the agent overestimates the expected revenue of the project following investment, however, he is willing to “wager” on success against the (relatively pessimistic) principal, and hence bear some project risk in equilibrium. In addition, because what the principal considers to be the optimal investment rule is too conservative according to the agent’s beliefs and the agent holds some stake in the choice of investment rule, he will accept a lower fixed payment in exchange for a more liberal investment rule. This can be interpreted as giving more control to the agent. It is somewhat counterintuitive that the principal will surrender more control to an agent with whom she disagrees more sharply.",
keywords = "overconfidence, expert advice, heterogeneous beliefs",
author = "{de la Rosa}, {Leonidas Enrique}",
year = "2007",
language = "English",
isbn = "978-0-9742114-7-3",
booktitle = "2007 Oxford Business & Economics Conference",
publisher = "Association for Business and Economics Research",

}

RIS

TY - GEN

T1 - Expert Advice, Control, and Heterogeneous Beliefs

AU - de la Rosa, Leonidas Enrique

PY - 2007

Y1 - 2007

N2 - This paper studies the effects of overconfidence in an investment-decision setting. A risk-averse agent privately observes information relevant to an investment decision, that he can report to a principal. In a standard common-priors setting, the optimal contract provides full insurance to the agent: the principal pays a fixed wage to the agent, asks him to reveal his information, and implements the efficient investment rule. When the agent overestimates the expected revenue of the project following investment, however, he is willing to “wager” on success against the (relatively pessimistic) principal, and hence bear some project risk in equilibrium. In addition, because what the principal considers to be the optimal investment rule is too conservative according to the agent’s beliefs and the agent holds some stake in the choice of investment rule, he will accept a lower fixed payment in exchange for a more liberal investment rule. This can be interpreted as giving more control to the agent. It is somewhat counterintuitive that the principal will surrender more control to an agent with whom she disagrees more sharply.

AB - This paper studies the effects of overconfidence in an investment-decision setting. A risk-averse agent privately observes information relevant to an investment decision, that he can report to a principal. In a standard common-priors setting, the optimal contract provides full insurance to the agent: the principal pays a fixed wage to the agent, asks him to reveal his information, and implements the efficient investment rule. When the agent overestimates the expected revenue of the project following investment, however, he is willing to “wager” on success against the (relatively pessimistic) principal, and hence bear some project risk in equilibrium. In addition, because what the principal considers to be the optimal investment rule is too conservative according to the agent’s beliefs and the agent holds some stake in the choice of investment rule, he will accept a lower fixed payment in exchange for a more liberal investment rule. This can be interpreted as giving more control to the agent. It is somewhat counterintuitive that the principal will surrender more control to an agent with whom she disagrees more sharply.

KW - overconfidence

KW - expert advice

KW - heterogeneous beliefs

M3 - Article in proceedings

SN - 978-0-9742114-7-3

BT - 2007 Oxford Business & Economics Conference

PB - Association for Business and Economics Research

ER -