Pandering to Persuade
Yeon-Koo Che, Wouter Dessein, Navin Kartik
American Economic Review · 2013 · Volume 103 · Issue 1
Abstract
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 recommendation 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. Pandering is also induced by an optimal mechanism without transfers. (JEL D23, D82)
Keywords
Organizational Behavior, Transaction Costs, Property Rights, Asymmetric and Private Information, Mechanism Design
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