Nathan Hancart, University of Oslo

"The optimal menu of tests"

Abstract

In many situations, decision-makers depend on tests to inform their choices. I consider a decision-maker that has access to a set of feasible tests and, prior to making a decision, requires a privately informed agent to choose a test from a menu. By offering a menu, the decision-maker can use the agent's choice as an additional source of information. The decision-maker must accept or reject the agent. The agent always wants to be accepted, while the decision-maker wants to accept only a subset of types. First, I show that the decision-maker does not benefit from commitment in this context. I use this result to show in several economic environments when the decision-maker benefits from offering a choice of test. When the domain of feasible tests contains a most informative test, I give necessary and sufficient conditions for when only the dominant test is offered for any prior and when a dominated test is always part of the optimal menu. I also show when the decision-maker benefits from a menu when types are multidimensional or tests vary in their difficulty.

Contact person: Julia Salmi