Reputation and Information Aggregation

    We analyze how reputation concerns of a partially informed decision-maker affect her ability to extract information from reputation-concerned advisors. Contrary to most of the literature, we show that the decision-maker’s concerns for her reputation as an expert can improve information aggregation. When the decision-maker’s reputation concerns are very low, she is tempted to ask for advice regardless of her private information, which undermines advisors’ truth-telling incentives. Very high reputation concerns destroy the incentives to seek advice. The optimal strength of the decision-maker’s reputation concerns maximizes advice-asking without undermining advisors’ incentives. Prior uncertainty about the state of nature calls for a more reputation-concerned decision-maker, unless the uncertainty becomes too high, in which case the reputation concerns become (almost) irrelevant. Finally, higher prior competence of advisors may worsen the quality of decisions when the decision-maker’s reputation concerns are not sufficiently strong.

Keywords: 

reputation concerns, information aggregation, advice

JEL classification: D82, D83