Rational Groupthink*

Abstract We study how long-lived rational agents learn from repeatedly observing a private signal and each others’ actions. With normal signals, a group of any size learns more slowly than just four agents who directly observe each others’ private signals in each period. Similar results apply to general signal structures. We identify rational groupthink—in which agents ignore their private signals and choose the same action for long periods of time—as the cause of this failure of information aggregation.

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Learning from prices: information aggregation and accumulation in an asset market

Annals of Finance ◽

10.1007/s10436-020-00378-w ◽

2020 ◽

Author(s):

Michele Berardi

Keyword(s):

Private Information ◽

Dynamic Properties ◽

Public Information ◽

Information Aggregation ◽

Time Varying ◽

Private Signals ◽

Private And Public ◽

Fundamental Value ◽

Over Time

Abstract Can prices convey information about the fundamental value of an asset? This paper considers this problem in relation to the dynamic properties of the fundamental (whether it is constant or time-varying) and the structure of information available to agents. Risk-averse traders receive two potential signals each period: one exogenous and private and the other, prices, endogenous and public. Prices aggregate private information but include aggregate noise. Information can accumulate over time both through endogenous and exogenous signals. With a constant fundamental, the precision of both private and public cumulative information increases over time but agents put progressively more weight on the endogenous signals, asymptotically disregarding private ones. If the fundamental is time-varying, the use of past private signals complicates the role of prices as a source of information, since it introduces endogenous serial correlation in the price signal and cross-correlation between it and innovations in the fundamental. A modified version of the Kalman filter can still be used to extract information from prices and results show that the precision of the endogenous signals converges to a constant, with both private and public information used at all times.

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Misinterpreting Others and the Fragility of Social Learning

Econometrica ◽

10.3982/ecta16981 ◽

2020 ◽

Vol 88 (6) ◽

pp. 2281-2328 ◽

Cited By ~ 2

Author(s):

Mira Frick ◽

Ryota Iijima ◽

Yuhta Ishii

Keyword(s):

Social Learning ◽

Negative Impact ◽

Information Aggregation ◽

The State ◽

Type Distribution ◽

Long Run ◽

Private Signals ◽

The World ◽

True State ◽

Over Time

We exhibit a natural environment, social learning among heterogeneous agents, where even slight misperceptions can have a large negative impact on long‐run learning outcomes. We consider a population of agents who obtain information about the state of the world both from initial private signals and by observing a random sample of other agents' actions over time, where agents' actions depend not only on their beliefs about the state but also on their idiosyncratic types (e.g., tastes or risk attitudes). When agents are correct about the type distribution in the population, they learn the true state in the long run. By contrast, we show, first, that even arbitrarily small amounts of misperception about the type distribution can generate extreme breakdowns of information aggregation, where in the long run all agents incorrectly assign probability 1 to some fixed state of the world, regardless of the true underlying state. Second, any misperception of the type distribution leads long‐run beliefs and behavior to vary only coarsely with the state, and we provide systematic predictions for how the nature of misperception shapes these coarse long‐run outcomes. Third, we show that how fragile information aggregation is against misperception depends on the richness of agents' payoff‐relevant uncertainty; a design implication is that information aggregation can be improved by simplifying agents' learning environment. The key feature behind our findings is that agents' belief‐updating becomes “decoupled” from the true state over time. We point to other environments where this feature is present and leads to similar fragility results.

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Social Learning Equilibria

Econometrica ◽

10.3982/ecta16465 ◽

2020 ◽

Vol 88 (3) ◽

pp. 1235-1267 ◽

Cited By ~ 1

Author(s):

Elchanan Mossel ◽

Manuel Mueller-Frank ◽

Allan Sly ◽

Omer Tamuz

Keyword(s):

Social Learning ◽

Information Aggregation ◽

Equilibrium Concept ◽

Extensive Form ◽

Equilibrium Behavior ◽

Dynamic Setting ◽

Private Signals ◽

The Given ◽

Asymptotic Equilibrium ◽

General Dynamic

We consider a large class of social learning models in which a group of agents face uncertainty regarding a state of the world, share the same utility function, observe private signals, and interact in a general dynamic setting. We introduce social learning equilibria, a static equilibrium concept that abstracts away from the details of the given extensive form, but nevertheless captures the corresponding asymptotic equilibrium behavior. We establish general conditions for agreement, herding, and information aggregation in equilibrium, highlighting a connection between agreement and information aggregation.

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Consequences of the Condorcet Jury Theorem for Beneficial Information Aggregation by Rational Agents

American Political Science Review ◽

10.2307/2585673 ◽

1998 ◽

Vol 92 (2) ◽

pp. 413-418 ◽

Cited By ~ 144

Author(s):

Andrew McLennan

Keyword(s):

Nash Equilibria ◽

Information Aggregation ◽

Common Interest ◽

Condorcet Jury Theorem ◽

Rational Agents ◽

Incorrect Decision ◽

Jury Theorem ◽

The One ◽

Sincere Voting

“Naïve” Condorcet Jury Theorems automatically have “sophisticated” versions as corollaries. A Condorcet Jury Theorem is a result, pertaining to an election in which the agents have common preferences but diverse information, asserting that the outcome is better, on average, than the one that would be chosen by any particular individual. Sometimes there is the additional assertion that, as the population grows, the probability of an incorrect decision goes to zero. As a consequence of simple properties of common interest games, whenever “sincere” voting leads to the conclusions of the theorem, there are Nash equilibria with these properties. In symmetric environments the equilibria may be taken to be symmetric.

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