Vague Lies and Lax Standards of Proof: On the Law and Economics of Advice
31 Pages Posted: 9 Jan 2011 Last revised: 28 Jun 2018
Date Written: June 21, 2018
This paper analyses a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.
Keywords: Advice, Persuasion, Legal Procedure, Consumer Protection
JEL Classification: D18, D8, K4, L1
Suggested Citation: Suggested Citation