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12 - Information Transmission, Acquisition, and Aggregation

Published online by Cambridge University Press:  05 August 2013

Sushil Bikhchandani
Affiliation:
University of California, Los Angeles
John G. Riley
Affiliation:
University of California, Los Angeles
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Summary

We revisit a theme of the last few chapters – the interplay of private information and strategic behavior. Some of the questions addressed here were examined earlier, in Chapters 5 and 6, but not in a setting with explicit strategic behavior. In Section 12.1, the incentive of an expert to transmit his information to an uninformed decision maker is investigated. The expert controls the amount of information revealed in order to influence the action of the uninformed individual. We studied the problem of inducing an expert to reveal information truthfully in Section 5.3.1. What is different here is that the payment to the expert cannot depend on the reported information. The question of costly acquisition of information is re-examined in Section 12.2. As in Section 6.3, inefficient acquisition of information can be traced back to a divergence between the private and social value of information.

In the rest of the chapter, we ask how well private information dispersed among individuals can be aggregated when individuals communicate only through their actions. In Section 12.3 we investigate information aggregation when individuals take actions – whether or not to adopt a certain behavior – in sequence. Private information is conveyed only through actions. Individuals care only about the information content of actions of their predecessors. In this setting there is a tendency to herd on similar actions, which blocks information transmission and makes information aggregation very inefficient.

Type
Chapter
Information
Publisher: Cambridge University Press
Print publication year: 2013

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