Research Seminars @ Illinois

Abstract: An agent decides when to take an irreversible action while learning dynamically whether it will succeed. He is reputation-driven, seeking to signal his ability to learn. In equilibrium, the agent engages in contrarian behavior: he is more willing to act on limited information when the prior probability of success is lower. Reputation induces systematic distortions in decision timing: the agent acts prematurely when it is highly disadvantageous ex ante, and with delay when it is advantageous. Distortions can dynamically reverse under moderate priors, with premature action at the beginning of the research process and excess caution later.