Rational Groupthink

We study how effectively long-lived rational agents learn from repeatedly observing each others’ actions. We find that in the long run, information aggregation fails, and the fraction of private information transmitted goes to zero as the number of agents gets large. With Normal signals, in the long-run, agents learn less from observing the actions of any number of other agents than they learn from seeing three other agents’ signals. We identify rational groupthink — in which agents ignore their private signals and choose the same action for long periods of time — as the cause of this failure of information aggregation