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Vague lies and lax standards of proof: On the law and economics of advice
Author(s) -
Drugov Mikhail,
TroyaMartinez Marta
Publication year - 2018
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12279
Subject(s) - advice (programming) , persuasion , cheap talk , economics , law and economics , microeconomics , mathematical economics , computer science , business , psychology , social psychology , programming language
This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.