Benefiting from Bias: Delegating to Encourage Information Acquisition

Ian Ball; Xin Gao

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arXiv · 2311.11526

Benefiting from Bias: Delegating to Encourage Information Acquisition

Ian Ball·Xin Gao

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Abstract

A principal delegates decisions to a biased agent. Payoffs depend on a state that the principal cannot observe. Initially, the agent does not observe the state, but he can acquire information about it at a cost. We characterize the principal's optimal delegation set. This set features a cap on high decisions and a gap around the agent's ex ante favorite decision. It may even induce ex-post Pareto-dominated decisions. Under certain conditions on the cost of information acquisition, we show that the principal prefers delegating to an agent with a small bias than to an unbiased agent.

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Ian Ball, Xin Gao. 2023-11-20. Benefiting from Bias: Delegating to Encourage Information Acquisition. https://arxiv.org/abs/2311.11526

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