COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 749 "Relying on the Information of Interested Parties" Paul R. Milgrom and John Roberts May 1985 We investigate the conventional wisdom that competition among interested parties
attempting to influence a decision maker by providing verifiable information brings out
all the relevant information. We find that, if the decision maker is strategically
sophisticated and well informed about the relevant variables and about the preferences of
the interested party or parties, competition may be unnecessary; while if the decision
maker is unsophisticated or not well informed, competition is not generally sufficient.
However, if the interested parties’ interests are sufficiently opposed, or if the
decision maker is seeking to advance the parties’ decision maker’s need for
prior knowledge about the relevant variables and for strategic sophistication. In other
settings, only the combination of competition among information providers and a
sophisticated skepticism is sufficient to allow defective decision making. |
