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Implementing the "Wisdom of the Crowd"

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  • Kremer, Ilan

    (Department of Economics, University of Warwick)

  • Mansour, Yishay

    (Tel Aviv University)

  • Perry, Motty

    (Department of Economics, University of Warwick)

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    Abstract

    We study a novel mechanism design model in which agents each arrive sequentially and choose one action from a set of actions with unknown rewards. The information revealed by the principal affects the incentives of the agents to explore and generate new information. We characterize the optimal disclosure policy of a planner whose goal is to maximize social welfare. One interpretation of our result is the implementation of what is known as the "wisdom of the crowd". This topic has become increasingly relevant with the rapid spread of the Internet over the past decade. JEL classification: JEL codes:

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    Bibliographic Info

    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1024.

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    Date of creation: 2013
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    Handle: RePEc:wrk:warwec:1024

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    1. Cripps, Martin William & Keller, Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3814, C.E.P.R. Discussion Papers.
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    3. Martimort, David & Semenov, Aggey, 2006. "Continuity in mechanism design without transfers," Economics Letters, Elsevier, Elsevier, vol. 93(2), pages 182-189, November.
    4. Jeacle, Ingrid & Carter, Chris, 2011. "In TripAdvisor we trust: Rankings, calculative regimes and abstract systems," Accounting, Organizations and Society, Elsevier, vol. 36(4), pages 293-309.
    5. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, American Economic Association, vol. 101(6), pages 2590-2615, October.
    6. Gershkov, Alex & Szentes, Bal√°zs, 2009. "Optimal voting schemes with costly information acquisition," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(1), pages 36-68, January.
    7. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, Econometric Society, vol. 67(2), pages 349-374, March.
    8. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
    9. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, Elsevier, vol. 9(2), pages 185-202, October.
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