Professional advice

This paper studies strategic communication by an expert who is concerned about appearing to be well informed. The expert is assumed to observe a private signal with a simple and particularly tractable (“multiplicative linear”) structure. The quality of the expert’s information is evaluated on the basis of the advice given and the realized state of the world. In equilibrium of this reputational cheap-talk game, no more than two messages are effectively reported. The model is extended to consider sequential communication by experts with conditionally independent signals. In the long run, learning is incomplete and herd behavior arises. JEL classification: D72; D82; D83; G20; J30.