When Bias is Useful: Delegation to a Rationally Inattentive Agent (with Andrei Matveenko, Pavel Ilinov, and Egor Starkov) (Slides)
Principal needs to delegate a decision under uncertainty to an agent and chooses among the candidates who differ in their prior beliefs. Prior to making the decision, agents can flexibly acquire costly information. We show that the principal benefits from delegation when the agent has a slightly more skeptical belief than the principal. In the “find the best alternative” setting, we demonstrate that principal can implement optimal choice probabilities not only using bias in the agent’s beliefs, but also using bias in the agent’s alternative-specific preferences. However, this equivalence result need not hold in a more general problem formulation.