American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
What You Don't Know May Be Good for You
American Economic Review
(pp. 1097–1147)
Abstract
We consider an economy in which long-lived experts are matched with short-lived clients. Experts choose the type of client with whom they match, unobserved by the market. The interaction outcome depends on both the expert's and the client's type. We study the effects of supplying information about otherwise unobservable outcomes, such as "medical report cards," to help clients identify better experts. Such information can lead to inefficient matches, as experts reject risky clients to build their reputation. Hence, information can reduce welfare. Withholding information can mitigate these perverse incentives at the cost of misallocating experts known to be inept.Citation
Hörner, Johannes, and Larry Samuelson. 2026. "What You Don't Know May Be Good for You." American Economic Review 116 (3): 1097–1147. DOI: 10.1257/aer.20250053Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness