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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. Martimort, David & Semenov, Aggey, 2006. "Continuity in mechanism design without transfers," Economics Letters, Elsevier, vol. 93(2), pages 182-189, November.
    2. Myerson, Roger B, 1986. "Multistage Games with Communication," Econometrica, Econometric Society, vol. 54(2), pages 323-58, March.
    3. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
    4. Godfrey Keller & Martin Cripps, 2003. "Strategic Experimentation with Exponential Bandits," Economics Series Working Papers 143, University of Oxford, Department of Economics.
    5. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    6. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.
    7. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    8. Alex Gershkov & Balazs Szentes, 2004. "Optimal Voting Schemes with Costly Information Acquisition," NajEcon Working Paper Reviews 122247000000000311, www.najecon.org.
    9. 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.
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