Acquiring information through peers

Bernard Herskovic and João Ramos

No 248, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We study information acquisition from peers when agents’ actions balance adaptation and coordination motives. Agents acquire information personally and may obtain additional information by connecting to other agents. Although equally informative regarding adaptation, the source’s relative position in the information structure is relevant to form expectations about actions of other players. In our setting, information sources are not perfectly substitutable, and the information of an “opinion maker†—an agent whose information is more public—is more informative of how others act. We show that, when players choose their connections, (i) it is always preferable to connect to opinion makers, and (ii) opinion makers have less incentives to form links. These two results characterize the endogenous shape of the network: Any strict equilibrium of the network formation game generates a hierarchical information structure. Furthermore, if the marginal cost of acquiring information is increasing, the information structure is “core-periphery†. We take advantage of the simplicity of the equilibrium information structure to provide two applications. First, we analyze how much of the aggregate volatility of forecast can the information structure account for. Second, we study the origins of leadership: how individual characteristics influence the role of the agent in the information structure.

Date: 2016
New Economics Papers: this item is included in nep-cdm, nep-gth, nep-mic, nep-net and nep-soc
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Citations: View citations in EconPapers (7)

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Journal Article: Acquiring Information through Peers (2020)
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