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The Wisdom of the Minority

  • Steven Callander
  • Johannes Horner

We consider a simple variant of the canonical model of social learning and show that in many situations it is optimal for an agent to abandon her own information and follow the minority rather than the majority. This possibility depends on two economically meaningful requirements: agents are differentially informed and observe only the number of agents having chosen each option, such as consumers observing only market shares. We show that minority wisdom arises when information is sufficiently heterogeneous and the well informed are not overly abundant, yet the conditions necessary are not overly restrictive. In fact, it is possible for the minority to be wise even when the minority consists of a lone dissenter and a majority of citizens are well informed.

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File URL: http://repec.org/sed2005/up.2337.1107191396.pdf
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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 683.

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Date of creation: 2005
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Handle: RePEc:red:sed005:683
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
  2. 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.
  3. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-70, September.
  4. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  5. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
  6. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer.
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