Network Effects on Information Acquisition by DeGroot Updaters

Miguel Risco ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: In today’s world, social networks have a significant impact on information processes, shaping individuals’ beliefs and influencing their decisions. This paper proposes a model to understand how boundedly rational (DeGroot) individuals behave when seeking information to make decisions in situations where both social communication and private learning take place. The model assumes that information is a local public good, and individuals must decide how much effort to invest in costly information sources to improve their knowledge of the state of the world. Depending on the network structure and agents’ positions, some individuals will invest in private learning, while others will free-ride on the social supply of information. The model shows that multiple equilibria can arise, and uniqueness is controlled by the lowest eigenvalue of a matrix determined by the network. The lowest eigenvalue roughly captures how two-sided a network is. Two-sided networks feature multiple equilibria. Under a utilitarian perspective, agents would be more informed than they are in equilibrium. Social welfare would be improved if influential agents increased their information acquisition levels.

Keywords: Information Acquisition; Learning; Public Goods; Network Effects; Information Diffusion; Bounded Rationality (search for similar items in EconPapers)
JEL-codes: C72 D61 D83 D85 H41 (search for similar items in EconPapers)
Pages: 31
Date: 2023-04
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net, nep-upt and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2023_420v2

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