Buying Opinions

TL;DR

This paper explores how a principal can incentivize an agent to acquire and report soft information truthfully, achieving optimal outcomes under certain conditions despite non-contractible learning and reporting.

Contribution

It demonstrates that principals can induce optimal information acquisition and truthful reporting even when these are non-contractible, under specific risk and cost conditions.

Findings

Principal can induce optimal information acquisition and truthful reporting.

First-best outcomes are achievable when the agent is risk neutral and certain conditions are met.

The paper characterizes second-best contracts under risk aversion.

Abstract

A principal hires an agent to acquire soft information about an unknown state. Even though neither how the agent learns nor what the agent discovers are contractible, we show the principal is unconstrained as to what information the agent can be induced to acquire and report honestly. When the agent is risk neutral, and a) is not asked to learn too much, b) can acquire information sufficiently cheaply, or c) can face sufficiently large penalties, the principal can attain the first-best outcome. We discuss the effect of risk aversion (on the part of the agent) and characterize the second-best contracts.