Theoretical Economics, Volume 14, Number 3 ( 2019)

Theoretical Economics 14 (2019), 1015–1061

The loser's curse in the search for advice

Pak Hung Au


An agent searches sequentially for advice from multiple experts concerning the payoff of taking an operation. After incurring a positive search cost, the agent can consult an expert, whose interest is partially aligned with him. There are infinitely many experts, each has access to an identically and conditionally independent signal structure about the payoff, and each makes a recommendation after observing the signal realization. We find that the experts face a loser's curse, which could hamper the quality of information transmission. This effect is illustrated by studying the limit of equilibria with vanishing search cost. The main findings are as follows. First, there are signal structures with which both the agent's payoff and social welfare are strictly lower than the alternative scenario in which the agent commits to consulting a single expert only. Second, under some signal structures, no information can be transmitted in equilibrium, even though informative recommendation is possible if the agent could commit to a single expert. Finally, we identify the necessary and sufficient condition that ensures perfect information aggregation in the limit.

Keywords: Search, expert advice, information transmission, information aggregation

JEL classification: D83

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