Download This PaperUseful Forecasting: Belief Elicitation for Decision-Making
27 Pages Posted: 8 Aug 2023 Last revised: 10 Aug 2023
Date Written: August 9, 2023
Abstract
Having information about an uncertain event is crucial for informed decision-making. This paper introduces a simple framework in which 1) a principal uses the reported beliefs of multiple agents to make a decision and 2) the agents reporting a belief are affected by the decision. Naturally, the question arises how the principal can incentivize the agents to report their belief truthfully. I show that in this setting a direct reporting mechanism using a scoring rule to incentivize belief reports and a fixed decision rule lead to truthful reporting by all agents as the unique Nash equilibrium under precisely two conditions, preference diversity and no pivotality. Moreover, if the principal can only consult a single agent the only mechanism that can guarantee truth-telling requires perfect knowledge of the agent’s preferences.
Keywords: principal-agent problem, uncertainty, private information, scoring rules, decentralized decision-making
JEL Classification: D71, D82, C72
Suggested Citation: Suggested Citation