The Crisis of Expertise

A careerist expert advises a sequence of principals on their actions to match a hidden, randomly evolving state. The expert privately knows her competence. The principals learn about the state and the expert’s competence from past advice and past action outcomes, both publicly observable. The paper represented in this MaCCI/EPoS Virtual IO Seminar finds that the equilibrium can feature a “crisis of expertise,” in which principals dismiss a competent expert’s correct advice, and rely only on public information. Notably, the crisis happens precisely when the quality of public information is low, and thus when expert knowledge is much needed. The author discusses policy implications for alleviating the crisis.