Skip to main content Accessibility help
×
Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-05T16:49:16.979Z Has data issue: false hasContentIssue false

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
Get access

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

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Austen-Smith, David and Banks, Jeff, “Information Aggregation, Rationality, and the Condorcet Jury Theorem,” American Political Science Review, 90 (1996), 34–45.CrossRefGoogle Scholar
Banerjee, Abhijit, “A Simple Model of Herd Behavior,” Quarterly Journal of Economics, 107 (1992), 797–818.CrossRefGoogle Scholar
Bergemann, Dirk and Valimaki, Juuso, “Information Acquisition and Efficient Mechanism Design,” Econometrica, 70 (2002), 1007–1033.CrossRefGoogle Scholar
Bikhchandani, Sushil, David, Hirshleifer, and Welch, Ivo, “A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades,” Journal of Political Economy, 100 (1992), 992–1026.CrossRefGoogle Scholar
Bikhchandani, Sushil, David, Hirshleifer, and Welch, Ivo, “Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades,” Journal of Economic Perspectives, 12 (1998), 151–170.CrossRefGoogle Scholar
Black, Duncan, The Theory of Committees and Elections, Cambridge: Cambridge University Press, 1958.Google Scholar
Chamley, Christophe P., Rational Herds: Economic Models of Social Learning, Cambridge: Cambridge University Press, 2003.CrossRefGoogle Scholar
Condorcet, Marquis De [1785], Essai sur application de l'analyse a la probabilité des décisions rendues a la pluralité des voix, trans. in Condorcet: Foundations of Social Choice and Political Theory, ed. McLean, Iain and Hewitt, Fiona, Brookfield, VT: Edward Elgar, 1994.Google Scholar
Crawford, Vincent and Sobel, Joel, “Strategic Information Transmission,” Econometrica, 50 (1982), 1431–1451.CrossRefGoogle Scholar
Dessein, Wouter, “Authority and Communication in Organizations,” Review of Economic Studies, 69 (2002), 811–838.CrossRefGoogle Scholar
Farrell, Joseph and Rabin, Matthew, “Cheap Talk,” Journal of Economic Perspectives, 10 (1996), 103–118.CrossRefGoogle Scholar
Krishna, Vijay and Morgan, John, “Cheap Talk,” in The New Palgrave Dictionary of Economics, Durlauf, S. N. and Blume, L. E. (eds.), 2nd edition, vol. 1, pp. 751–756, New York: Palgrave Macmillan, 2008.Google Scholar
Matthews, Steven, “Information Acquisition in Competitive Bidding Process,” in Boyer, Marcel and Kihlstrom, Richard (eds.), pp. 181–207 Bayesian Models in Economic Theory, New York: North-Holland, 1984.Google Scholar
Milgrom, Paul, “Rational Expectations, Information Acquisition, and Competitive Bidding,” Econometrica, 49 (1981), 921–943.CrossRefGoogle Scholar
Ordeshook, Peter C., A Political Theory Primer, New York: Routledge, 1992.Google Scholar
Welch, Ivo, “Sequential Sales, Learning and Cascades,” Journal of Finance, 47 (1992), 695–732.CrossRefGoogle Scholar

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×