Working Paper: CEPR ID: DP17413
Authors: Berno Buechel; Lydia Mechtenberg; Alexander F. Wagner
Abstract: Introducing a single expert's advice before a vote can diminish its informational efficiency. We show that when two independent experts are involved, the opposite occurs: informational efficiency increases. We model expert advice, individual information acquisition, and voting in common-interest scenarios, using proxy advice and shareholder voting as the primary example. Adding a second expert enhances decision quality under two plausible assumptions: the first expert holds superior information compared to individual voters, and the second expert's advice is timely. When the second expert challenges the first's proposal, voters are prompted to conduct their own inquiries, resulting in better-informed decisions and reducing the likelihood of correlated errors. These findings hold implications for collective decision-making across various organizational settings.
Keywords: proxy advisors; strategic voting
JEL Codes: G23; D72; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| presence of a proxy advisor (G34) | improved corporate decision quality (G34) |
| board is better informed than individual shareholders (G34) | presence of a proxy advisor encourages shareholders to invest in their own research (G34) |
| shareholders can condition their research investments on proxy advice (G34) | presence of a proxy advisor encourages shareholders to invest in their own research (G34) |
| proxy advisor's signal contradicts that of the board (G34) | shareholders are more likely to invest in their own signals (G40) |
| shareholders are more likely to invest in their own signals (G40) | improved corporate decision quality (G34) |