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Pandering to Persuade

  • Communication
  • Design


Pandering to Persuade Pandering to Persuade By Yeon-Koo Che and Wouter Dessein and Navin Kartik∗ An agent advises a principal on selecting one of multiple projects or an outside option. The agent is privately informed about the projects’ benefits and shares the principal’s preferences except for not internalizing her value from the outside option. We show that for moderate outside option values, strategic communication is characterized by pandering: the agent biases his recommenda- tion toward “conditionally better-looking” projects, even when both parties would be better off with some other project. A project that has lower expected value can be conditionally better-looking. We develop comparative statics and implications of pandering. Pan- dering is also induced by an optimal mechanism without transfers. A central problem in organizations and markets is that of a decision-maker (DM) who must rely upon advice from a better-informed agent. Starting with Crawford and Sobel (1982), a large literature studies the credibility of “cheap talk” when there are conflicts of interest between the two parties. This paper addresses a novel issue: how do differences in observable or verifiable character- istics of the available alternatives affect cheap talk about non-verifiable private information? In a nutshell, our main insight is that the agent’s desire to persuade the DM ineluctably leads to recommendations that systematically pander toward alternatives that look better. We study how pandering affects strategic commu- nication and its implications for market and organizational responses, including optimal mechanism design. In any number of applications, a DM has partial “hard” or verifiable informa- tion about the options she must choose between. For instance, a corporate board deciding which capital investment project to fund has some prior experience about which kinds of projects are more or less likely to succeed; a firm that could hire a consultant to revamp its management process

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