Precision may harm: The comparative statics of imprecise judgement

Abstract

We consider an agent whose information about the objects of choice is imperfect in two respects: first, their values are perceived with ‘error’; and, second, the realised values cannot be discriminated with absolute ‘precision’. Reasons for imprecise discrimination include limitations in sensory perception, memory function, or the technology that experts use to communicate with decision-makers.

We study the effect of increasing precision on the quality of decision-making. When values are perceived ‘without’ error, more precision is unambiguously beneficial. We show that this ceases to be true when values are perceived ‘with’ error. As a practical implication, our results establish conditions where it is counter-productive for an expert to use a finer signalling scheme to communicate with a decision-maker.