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The Wisdom of the Crowd When Acquiring Information Is Costly

Author

Listed:
  • Jacob Glazer

    (Department of Economics, University of Warwick, Coventry CV4 7AL, United Kingdom; The Coller School of Management, Tel Aviv University, Tel Aviv 6997801, Israel)

  • Ilan Kremer

    (Department of Economics, University of Warwick, Coventry CV4 7AL, United Kingdom; School of Business Adminstration and Department of Economics, Hebrew University, Jerusalem 9190501, Israel)

  • Motty Perry

    (Department of Economics, University of Warwick, Coventry CV4 7AL, United Kingdom)

Abstract

We consider a sequential investment process that is characteristic of crowdfunding platforms, among other contexts. Investors wish to avoid the cost of information acquisition and thus prefer to rely on information acquired by previous investors. This may lead to a phenomenon similar to an information cascade. We characterize the optimal policy that balances between the incentive to acquire information and the optimal investment decision. The policy is based on time-varying transparency levels such that it may be worthwhile to conceal some information in some periods.

Suggested Citation

  • Jacob Glazer & Ilan Kremer & Motty Perry, 2021. "The Wisdom of the Crowd When Acquiring Information Is Costly," Management Science, INFORMS, vol. 67(10), pages 6443-6456, October.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:10:p:6443-6456
    DOI: 10.1287/mnsc.2020.3792
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    References listed on IDEAS

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    Keywords

    information processing; analytic modeling;

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