Rational Exaggeration in Information Aggregation Games

47 Pages Posted: 7 Oct 2008

See all articles by Gordon C. Rausser

Gordon C. Rausser

University of California, Berkeley - Department of Agricultural and Resource Economics

Leo K. Simon

U.C. Berkeley, Dept of Agricultural and Resource Economics

Jinhua Zhao

Dyson School of Applied Economics and Management

Date Written: October 6, 2008

Abstract

This paper studies a class of information aggregation models which we call "aggregation games." It departs from the related literature in two main respects: information is aggregated by averaging rather than majority rule, and each player selects from a continuum of reports rather than making a binary choice. Each member of a group receives a private signal, then submits a report to the center, who makes a decision based on the average of these reports. The essence of an aggregation game is that heterogeneous players engage in a "tug-of-war," as they attempt to manipulate the center's decision process by mis-reporting their private information. When players have distinct biases, almost of them rationally exaggerate the extent of these biases. The degree of exaggeration increases with the number of players: if the game is sufficiently large, then almost all players exaggerate to the maximum admissible extent, regardless of their individual signals. In the limit, the connection between players' private information and the outcome of the game is obliterated.

Keywords: information aggregation, majority rule, proportional representation, mean versus median mechanism, strategic communication, incomplete information games, strategic information transmission

JEL Classification: F71, D72, D82

Suggested Citation

Rausser, Gordon C. and Simon, Leo K. and Zhao, Jinhua, Rational Exaggeration in Information Aggregation Games (October 6, 2008). Available at SSRN: https://ssrn.com/abstract=1279601 or http://dx.doi.org/10.2139/ssrn.1279601

Gordon C. Rausser (Contact Author)

University of California, Berkeley - Department of Agricultural and Resource Economics ( email )

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Berkeley, CA 94720
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HOME PAGE: http://are.berkeley.edu/~rausser/

Leo K. Simon

U.C. Berkeley, Dept of Agricultural and Resource Economics ( email )

207 Giannini Hall
Berkeley, CA 94720
United States
510-642-8430 (Phone)
510-643-8911 (Fax)

Jinhua Zhao

Dyson School of Applied Economics and Management ( email )

Ithaca, NY 14850
United States

HOME PAGE: http://https://sites.google.com/view/jinhuazhao