Rational Groupthink

TL;DR

This paper investigates how rational agents learn from private signals and each other's actions, revealing that groupthink can hinder effective information aggregation in large groups.

Contribution

It introduces the concept of rational groupthink, explaining why larger groups learn more slowly and often ignore private signals, extending understanding of information dynamics.

Findings

Large groups learn slower than small groups with direct signal observation.

Rational groupthink causes agents to ignore private signals, leading to poor information aggregation.

Similar results hold for various signal structures.

Abstract

We study how long-lived rational agents learn from repeatedly observing a private signal and each others' actions. With normal signals, a group of any size learns more slowly than just four agents who directly observe each others' private signals in each period. Similar results apply to general signal structures. 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.