Steven Callander (Stanford Graduate School of Business)

"Communication in a Complicated World"

21 March 2018, 12:00 pm

Abstract

A layperson seeks advice from an expert about a decision he has to make.  The expert is privately informed about the mapping from feasible decisions to outcomes, which takes the form of a realization of a Brownian motion with drift.  For each decision, the expert has a hard piece of information that proves the outcome. The expert prefers smaller decisions and the layperson prefers decisions that generate outcomes that are closer to his preferred one.  Neither party is able to commit to behavior in advance.  We explore the sender’s ability to sway decision making in her favor by strategically structuring her advice.  We show that the expert benefits, and the layperson loses, if the expert complements her recommended action with additional contextual information about decisions she does not want the layperson to make.  Context is effective because it changes the receiver’s beliefs about those actions and about other actions the receiver may contemplate taking instead of the expert’s recommendation.  Indeed, contextual information can be so effective that, more often than not, the layperson would be better off not getting any advice than listening to the expert.