Risky Advice and Reputational Bias
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arXiv
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| Autori principali: | , , |
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| Natura: | Preprint |
| Pubblicazione: |
2025
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| _version_ | 1866912569942343680 |
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| author | Lukyanov, Georgy Vlasova, Anna Ziskelevich, Maria |
| author_facet | Lukyanov, Georgy Vlasova, Anna Ziskelevich, Maria |
| contents | We study expert advice under reputational incentives, with sell-side equity research as the lead application. A long-lived analyst receives a continuous private signal about a binary payoff and recommends a risky (Buy) or safe action. Recommendations and outcomes are public, and clients' implementation effort depends on current reputation. In a recursive, belief-based equilibrium: (i) advice follows a cutoff in the signal; (ii) under a simple diagnosticity asymmetry, the cutoff is (weakly) increasing in reputation (reputational conservatism); and (iii) comparative statics are transparent - higher signal precision or a higher success prior lowers the cutoff, whereas stronger career concerns raise it. A success-contingent bonus implements any target experimentation rate via a closed-form mapping. The model predicts that high-reputation analysts make fewer risky calls yet attain higher conditional hit rates, and it clarifies how committee thresholds and monitoring regimes shift behavior. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2508_19707 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Risky Advice and Reputational Bias Lukyanov, Georgy Vlasova, Anna Ziskelevich, Maria Theoretical Economics We study expert advice under reputational incentives, with sell-side equity research as the lead application. A long-lived analyst receives a continuous private signal about a binary payoff and recommends a risky (Buy) or safe action. Recommendations and outcomes are public, and clients' implementation effort depends on current reputation. In a recursive, belief-based equilibrium: (i) advice follows a cutoff in the signal; (ii) under a simple diagnosticity asymmetry, the cutoff is (weakly) increasing in reputation (reputational conservatism); and (iii) comparative statics are transparent - higher signal precision or a higher success prior lowers the cutoff, whereas stronger career concerns raise it. A success-contingent bonus implements any target experimentation rate via a closed-form mapping. The model predicts that high-reputation analysts make fewer risky calls yet attain higher conditional hit rates, and it clarifies how committee thresholds and monitoring regimes shift behavior. |
| title | Risky Advice and Reputational Bias |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2508.19707 |