Selecting into social learning

In the presence of communication frictions, individuals must draw inferences about the information they receive from others. Building on a simple theoretical model we experimentally investigate strategic information exchange in the presence of costly and coarse communication. While we find support for the model's prediction that individuals respond to the instrumental value of information, there is significant over-participation in costly information exchange. Moreover, participants fail to account for the strategic behavior of others, in line with the literature on selection neglect and failures of contingent reasoning. Failures occur in both directions, with uninformed agents refusing to use valuable information and well-informed agents blindly "following the crowd". In a subsequent online experiment, we consider potential drivers of the gap between theoretical predictions and experimental results, varying the complexity of the information updating task and introducing a non-social source of additional information. Our results suggest that people fail to use contextual information when interpreting the information they receive from peers, highlighting a way that the "wisdom of the crowd" can fail.