Working Papers - details - WEF0046
When Half the Truth is Better than the Truth: A Theory of Aggregate Information Cascades
Antonio Guarino, Heike Harmgart and Steffen Huck
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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 naturally 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 information from the public.