Beliefs, credence goods and information campaigns

Abstract

We study the role of beliefs about experts’ honesty in a credence goods model with second opinions. The welfare-maximizing belief generally differs from the actual share of honest experts and exceeds the belief that maximizes honest behavior. Transparency, defined as experts’ awareness of opinion order, shapes the optimal belief and may enhance or hinder honest behavior. Incorporating beliefs and transparency into the standard model opens the door to interesting policy implications, like the opportunity for a public authority to release an information campaign that affects people’s beliefs. We identify conditions under which the costless revelation of the share of honest experts improves welfare, showing that they are independent of initial belief accuracy.