ABSTRACT
We explore strategic information transmission when there is noise at the observation stage, when an expert observes signals, before he advises a policymaker. That is, the expert might be inexpert. We account for the fact that his signals might be totally uninformative, which is commonly known by players. We find that this inexpertise translates into a greater preference misalignment between players and that this yields a less informative equilibrium. We show that our results follow from the fact that the strategic effect of noise – the welfare change exclusive due to changes in the equilibrium partition – is always negative. Numerical simulations show that noise might be beneficial if the policymaker openly disagrees about noise chances. This makes the point that whether noise is beneficial or not crucially depends on how early in the game it arises, and also whether noise chances are commonly known by players or not.
KEYWORDS:
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 The uniform-quadratic case is the most commonly used set of assumptions in applications of the CS model (see Blume, Board, and Kawamura Citation2007; Ivanov Citation2010; Agastya, Bag, and Chakraborty Citation2014).
2 The sender ex-ante expected utility is
. Using Equation 2 yields
and
, as in CS.
3 .: