Information Aggregation and Social Networks: Responsiveness and Overturning
This paper studies how network structures affect the efficiency of information aggregation in social learning environments. We consider a model in which rational agents sequentially choose actions based on private signals and observations of their neighbors'actions in a network. Focusing on comparisons of expected payoffs at a given finite period, we show that there exists an information structure under which the star network achieves a strictly higher expected payoff than any other network, and another information structure under which the complete network achieves a strictly higher expected payoff than any other network. Taken together, these results imply that no network is uniformly optimal across all information structures. Our analysis highlights a trade-off between the responsiveness effect and the overturning effect: disconnected networks preserve responsiveness of actions to private signals, whereas highly connected networks facilitate the aggregation of extreme information that overturns public beliefs.