The Ambiguous Effect of Rankings : Strategically Biased Forecasting by Advisers

Laux, Christian ; Probst, Daniel A.

Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume: 99-54
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Wirtschaftstheorie (Kübler -2011)
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Abstract: We present a model of investors acquiring forecasts from a group of advisers (analysts), some of which are better informed than others. Investors may pick an adviser based on his past performance. In the literature it is typically assumed that agentsã rewards depend solely on the type they are perceived to be, which leads to typical herding results. In contrast here, advisersã rewards not only depend on their own reputation but also on the number of advisers with a similar reputation. There exist two interesting types of equilibria: in the first type it is optimal for investors to ignore advisersã past performance, even though advisers make predictions according to their best knowledge. In a second type investors do use past performance to select advisers. However this induces advisers to predict strategically, i.e. some advisers knowingly make wrong predictions.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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