Correlation Neglect in Belief Formation
In: CESifo Working Paper Series No. 4483
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In: CESifo Working Paper Series No. 4483
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In: sofia-Diskussionsbeiträge zur Institutionenanalyse Nr. 16, 6
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In: Journal of risk and uncertainty, Band 59, Heft 1, S. 23-49
ISSN: 1573-0476
In: NBER Working Paper No. w26734
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In: Management Science, Forthcoming
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In: Journal of Economic Behavior and Organization, Band 217
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A biased newspaper aims to persuade voters to vote for the government. Voters are uncertain about the government's competence. Each voter receives the newspaper's report as well as independent private signals about the competence. Voters then exchange messages containing this information on social media and form posterior beliefs, neglecting correlation among messages. We show that greater social connectivity increases the probability of an efficient voting outcome if the prior favours the government; otherwise, efficiency decreases. The probability of an efficient outcome remains strictly below one even when connectivity becomes large, implying a failure of the Condorcet jury theorem. ; We gratefully acknowledge support from the Ministerio de Economia y Competitividad (Spain) through grants ECO2014-55953-P, ECO2017-86261-P, MDM 2014-0431, ECO2016-78632-P, and PGC2018-098510-B-I00. Many special thanks are due to La China Mandarina in Madrid and its staff for providing an inspiring environment.
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In: American economic review, Band 105, Heft 4, S. 1634-1645
ISSN: 1944-7981
In this paper we analyze elections when voters underestimate the correlation between their information sources ("correlation neglect"). We find that this cognitive bias can improve political outcomes. We show that the extreme beliefs which result from correlation neglect induce some voters to base their vote on information rather than on political preferences. We characterize conditions on the distribution of preferences under which this induces higher vote shares for the optimal policies and better information aggregation. (JEL D72, D83)
In: The economic journal: the journal of the Royal Economic Society
ISSN: 1468-0297
Abstract
A biased newspaper aims to persuade voters to vote for the government. Voters are uncertain about the government's competence. Each voter receives the newspaper's report as well as independent private signals about the competence. Voters then exchange messages containing this information on social media and form posterior beliefs, neglecting correlation among messages. We show that greater social connectivity increases the probability of an efficient voting outcome if the prior favours the government; otherwise, efficiency decreases. The probability of an efficient outcome remains strictly below one even when connectivity becomes large, implying a failure of the Condorcet jury theorem.
In: CEPR Discussion Paper No. DP12640
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