"Helpful laymen in informational cascades," Journal of Economic Behavior and Organization, August 2015, volume 116, pages 407-415
Abstract: This paper extends Bikhchandani, Hirshleifer and Welch’s informational cascade model by introducing two types of players: experts with high signal accuracy and laymen with low signal accuracy. If a small enough fraction of laymen are present in the population, the probability of having a correct cascade is strictly higher than if no laymen are present. This is because the presence of laymen makes experts less eager to follow suit, which increases the amount of private information revealed.
Abstract: This paper shows that biased persuaders can provide highly useful information to a decision maker due to cooperative, and not competitive, motives. I study Bayesian persuasion games with persuaders who all want a decision maker to take the same action unconditionally. While the optimal information design from a unique persuader never benefits the decision maker, I show that this is not the case when there are multiple identical persuaders. Despite the fact that all persuaders share a common goal, there always exist equilibria in which they endogenously collect high-quality information that benefits the decision maker. Moreover, these equilibria with information surplus for the decision maker are the only equilibria when the accuracy of feasible information is sufficiently bounded or when the number of persuaders is sufficiently large. The persuaders’ motivation to provide extra information is cooperative; the extra information helps offset their colleagues’ potential negative news. As a result, more information benefits both the decision maker and the persuaders.