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Information projection: model and applications

Madarász, Kristóf (2012) Information projection: model and applications. The Review of Economic Studies, 79 (3). pp. 961-985. ISSN 0034-6527

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Abstract

People exaggerate the extent to which their information is shared with others. This paper introduces the concept of such information projection and provides a simple but widely applicable model. The key application describes a novel agency conflict in a frictionless learning environment. When monitoring with ex post information, biased evaluators exaggerate how much experts could have known ex ante and underestimate experts on average. Experts, to defend their reputations, are too eager to base predictions on ex ante information that substitutes for the information jurors independently learn ex post and too reluctant to base predictions on ex ante information that complements the information jurors independently learn ex post. Instruments that mitigate Bayesian agency conflicts are either ineffective or directly backfire. Applications to defensive medicine are discussed.

Item Type: Article
Official URL: http://restud.oxfordjournals.org/
Additional Information: © 2012 The Author
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Journal of Economic Literature Classification System: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, and Operations
D - Microeconomics > D3 - Distribution
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty
Sets: Departments > Management
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 12 Jun 2012 10:27
URL: http://eprints.lse.ac.uk/44303/

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