When second opinions hurt: A model of expert advice under career concerns

We develop a reputational cheap talk model where the principal can cancel an action initially started on the advice of an expert if she gets some unfavorable interim news. But if the status quo is reinstated, the principal is unable to verify the true state of the world. In the model, experts want to appear smart and we find that the possibility of canceling the action encourages less well informed experts to recommend it more often. We then show that gaining access to interim news as well as improving the quality of an existing one can both reduce the principal's welfare. The model implies that delegating the decision rights to another person with different preferences can be used as a commitment device by the principal and might improve her welfare.

► We develop a two-stage reputational cheap talk game in which the principal can cancel a reform initially recommended by an expert if she gets an unfavorable second opinion later. ► The true state can be verified if and only if the principal carries out the reform to the end. The status quo choice does not reveal any information about the true state. ► We investigate the effect on the expert's reporting strategy when the principal gains access to the interim news or alters its precision. ► It is found that gaining access to the interim news or improving the quality of an existing one can both reduce the welfare of the principal. We also investigate the implication of the model on delegation.