Centre for Development Economics
and
Department of Economics, Delhi School of Economics
ANNOUNCE A SEMINAR
Perspectives, Opinions and Information Flows
by
Prof. Rajiv Sethi
Barnard College
Columbia University
Thursday, October 11, 2012 at 3:00 p.m.
Venue : AMEX Conference Room (Second Floor)
Department of Economics, Delhi School of Economics
All are cordially invited
Abstract
Among the many important roles played by networks in social and economic life is that of carriers of information. In fact, the formation of links among otherwise disconnected individuals is often motivated precisely by this function. Subscriptions to blog and twitter feeds have this character, as do more traditional activities such as the monitoring of radio and television broadcasts or the reading of books and newspapers.
Since an individual’s capacity to receive and process information is limited, it is necessary to make choices regarding the set of opinions that one chooses to observe at any time. These choices are further complicated by the fact that the observation of another’s opinion gives rise to an inference problem, since an opinion is based partly on one’s information and partly on one’s prior beliefs. If the prior beliefs of all individuals were mutually known, this problem would have a trivial solution, and each individual would simply choose to observe those who happen to have the most precise information.
But prior beliefs are not generally observable, and this gives rise to a trade-off between individuals who are well-informed and those who are well-understood. An individual is well-informed if the precision of her information is high. She is well-understood by an observer if the precision of the observer’s beliefs about her prior is high. That is, a person is well-understood if her beliefs reveal her information with a high degree of precision. Clearly, there is little value in observing a well-informed person who is very poorly understood in this sense, since her beliefs will provide a very noisy signals about her information to the observer. Hence individuals will not always observe those who are the best-informed, especially if informational differences across individuals are small relative to differences in the degree to which they are well-understood.
This has some interesting dynamic implications, since the observation of an opinion not only provides a signal about the information that gave rise to it, but also reveals something about the observed individual’s prior belief. In other words, the process of being observed makes one better understood. This process can give rise to unusual and interesting patterns of linkages over time, even of all individuals are identical to begin with. It is these effects with which the present paper is concerned, with particular focus on two phenomena: opinion leadership and information segregation.