Will Truth Out ? — An Advisor ’ s Quest To Appear Competent ∗

This paper deals with the problem of providing adequate incentives to an advisor who might be tempted to conceal his true opinion because of his desire to appear competent. We show that if a competent advisor never makes mistakes, the incentive problem will disappear if the time horizon is long enough. If a competent advisor makes infrequent mistakes, the incentive problem will disappear for intermediate time horizons, but will always arise if the time horizon is very long. We furthermore demonstrate that the decision maker can address the incentive problem by letting the advisor accumulate some private information about his ability, and that doing so is optimal if the competent advisor does not make mistakes too often.