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Introduction
In order to reduce uncertainty decision-makers in practice often rely on external information
sources such as consultants, real estate agents, or an “helpful” salesperson who is hoping
to close a deal.
How much can the decision-maker learn from such interested parties,
informants who themselves have a stake in the decision to be made?
In politics the reliance on informed but interested parties is routine. Interest groups
constitute a critical source of information at various stages of the policy process, when
presenting expert opinion in congressional or administrative hearings, formally commenting
on proposed legislation or regulation, and even during informal conversations with decision-
makers and their staff.
Information providers—and interest groups in particular—frequently offer their advice
freely and eagerly, especially if they have a stake in the decision in question and hope that
the information offered is likely to change the decision-makers choice in their favor. The
paper derives conditions of what type of information is revealed and what a decision-maker
actually learns when relying on voluntary, interested providers of information.
If the information provider is known to be perfectly informed, Milgrom (1981) has shown
that the decision-maker learns all the information she needs to know from the informed party
by adopting most pessimistic beliefs whenever she does not learn the state of the world.
The pessimistic beliefs force the information provider to reveal everything he knows, even if
the information is unfavorable to him. This paper differs in that the information provider
is not known to be fully informed. The provider receives a partially informative signal
about the state of the world, which he can then choose to share with or to withhold from
the decision-maker. The provider has an incentive to withhold the information whenever it
would lead the decision-maker to an action that makes the provider worse off. The decision-
maker with rational expectations about the provider’s behavior learns the state of the world
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Convention