Rational Groupthink

34 Pages Posted: 24 Dec 2014 Last revised: 13 Oct 2018

See all articles by Matan Harel

Matan Harel

University of Geneva

Elchanan Mossel

Massachusetts Institute of Technology (MIT)

Philipp Strack

Yale, Department of Economics

Omer Tamuz

California Institute of Technology - Division of the Humanities and Social Sciences

Date Written: December 22, 2014

Abstract

We study how effectively long-lived rational agents learn from repeatedly observing each others’ actions. We find that in the long run, information aggregation fails, and the fraction of private information transmitted goes to zero as the number of agents gets large. With Normal signals, in the long-run, agents learn less from observing the actions of any number of other agents than they learn from seeing three other agents’ signals. 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.

Keywords: Bayesian learning

JEL Classification: C73, D82, D83

Suggested Citation

Harel, Matan and Mossel, Elchanan and Strack, Philipp and Tamuz, Omer, Rational Groupthink (December 22, 2014). Available at SSRN: https://ssrn.com/abstract=2541707 or http://dx.doi.org/10.2139/ssrn.2541707

Matan Harel

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Elchanan Mossel

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Philipp Strack (Contact Author)

Yale, Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Omer Tamuz

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

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