Strategy15Handout - 10/29/2008 Expert Advice We often rely...

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10/29/2008 1 Expert Advice ± We often rely on professionals to diagnose problems and recommend and carry out fixes ± Doctors ± Auto Mechanics and Repair Technicians ± Lawyers ± Financial Advisors and Real Estate Agents ± Teachers and Researchers ± Can we expect that professionalism will always guide the expert to work in the clients best interest? Expert Advice ± A customer has a problem. ± Major problem with probability r, 0<r<1 ± Minor problem with probability 1-r ± Major problem requires a Major Repair ± Minor problem only requires a Minor Repair, but can be fixed with a Major Repair as well ± Customer always accepts Minor Repair advice, but may accept or reject Major Repair advice Expert Advice ± The Expert always recommends Major Repair advice for a Major Problem, but may recommend Major Repair for a Minor Problem ± The Expert’s profit Problem Repair Profit Major Major X Minor Minor X Minor Major X1 > X Expert Advice ± The Customer’s costs Problem Repair Cost Major Major E
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This note was uploaded on 04/14/2010 for the course ECON 398 taught by Professor Emre during the Spring '07 term at University of Michigan.

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Strategy15Handout - 10/29/2008 Expert Advice We often rely...

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