English

Risky Advice and Reputational Bias

Theoretical Economics 2025-09-05 v4

Abstract

We study expert advice under reputational incentives, with sell-side equity research as the lead application. A long-lived analyst receives a continuous private signal about a binary payoff and recommends a risky (Buy) or safe action. Recommendations and outcomes are public, and clients' implementation effort depends on current reputation. In a recursive, belief-based equilibrium: (i) advice follows a cutoff in the signal; (ii) under a simple diagnosticity asymmetry, the cutoff is (weakly) increasing in reputation (reputational conservatism); and (iii) comparative statics are transparent - higher signal precision or a higher success prior lowers the cutoff, whereas stronger career concerns raise it. A success-contingent bonus implements any target experimentation rate via a closed-form mapping. The model predicts that high-reputation analysts make fewer risky calls yet attain higher conditional hit rates, and it clarifies how committee thresholds and monitoring regimes shift behavior.

Keywords

Cite

@article{arxiv.2508.19707,
  title  = {Risky Advice and Reputational Bias},
  author = {Georgy Lukyanov and Anna Vlasova and Maria Ziskelevich},
  journal= {arXiv preprint arXiv:2508.19707},
  year   = {2025}
}
R2 v1 2026-07-01T05:08:06.525Z