Public Information in Populations with Heterogeneous Interests

Public signals are well-known to be particularly influential when privately informed agents interact strategically (e.g. Morris and Shin AER 2002). However, that a signal is ``public" in the common knowledge sense is a much stronger assumption than what is implied by the everyday meaning of the word. In this paper we will argue that it is useful to make a distinction between information that is public in the strong common knowledge sense of the word and information that is merely publicly available. Agents with partially heterogeneous interests have a choice between different information providers, where an information provider is defined by a news selection function. The news selection function of a particular information provider determines which events the provider will report conditional on the entire set of realized events which is a larger set than what is feasible to report on. Information providers thus perform an editorial service for their customers by selecting which events to report. An individual agent will choose to get information from the provider that he expects to report the most interesting events. The optimal choice will depend on the preferences of the agent, the news selection functions available and the distribution of events. The degree of "publicness" of an event is endogenous and the paper thus provides a theory of what type of information becomes common knowledge among populations with heterogeneous interests. The theory can be used to characterize the implications of the editorial function of information providers for agents' posterior beliefs and equilibrium actions.