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When half the truth is better than the truth: A Theory of aggregate information cascades

Author

Listed:
  • Antonio Guarino

    (University College London)

  • Steffen Huck

    (University College London)

  • Heike Harmgart

    (European Bank for Reconstruction and Development(EBRD))

Abstract

We introduce a new model of aggregate information cascades where only one of two possible actions is observable to others. When called upon, agents (who decide in some random order that they do not know) are only informed about the total number of others who have chosen the observable action before them. This informational structure arises nat- urally in many applications. Our most important result is that only one type of cascade arises in equilibrium, the aggregate cascade on the observable action. A cascade on the unobservable action never arises. Our results may have important policy consequences. Central agencies, for example in the health sector, may optimally decide to withhold in- formation from the public.

Suggested Citation

  • Antonio Guarino & Steffen Huck & Heike Harmgart, 2008. "When half the truth is better than the truth: A Theory of aggregate information cascades," WEF Working Papers 0046, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
    • Handle: RePEc:wef:wpaper:0046
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    References listed on IDEAS

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    Cited by:

    1. Antonio Guarino & Philippe Jehiel, 2013. "Social Learning with Coarse Inference," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 147-174, February.
    2. Antonio Guarino & Antonella Ianni, 2010. "Bayesian Social Learning with Local Interactions," Games, MDPI, vol. 1(4), pages 1-21, October.
    3. Antonio Guarino & Philippe Jehiel, 2009. "Social Leanring with Course Inference," WEF Working Papers 0050, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.

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