Risk perception with imperfect information and social interactions: Understanding group polarization

Jacques Pelletan

Bulletin of Economic Research, 2021, vol. 73, issue 4, 688-703

Abstract: This article examines the group polarization process when agents are faced with a risk for which the probability of occurrence is not perfectly known. First, we show information destruction through an informational cascade phenomenon. Then, we analyze how this inefficiency is amplified if individuals with the same type of risk‐related behavior group together. Two extensions are detailed: consideration of the possibility that individual agents participate in more than one group, and introduction of agents highly confident in their own information, enabling cascades to be "broken." Under conditions, the behavior of these agents, costly at the individual level, is collectively efficient.

Date: 2021
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https://doi.org/10.1111/boer.12272

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Persistent link: https://EconPapers.repec.org/RePEc:bla:buecrs:v:73:y:2021:i:4:p:688-703

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