The Wisdom Of Others

When we choose to act on our own private clues, or to infer the clues of others from their actions, we too often neglect the wisdom of others:

In situations where it is empirically optimal to follow others and contradict one’s own information, the players err in the majority of cases, forgoing substantial parts of earnings. The average player contradicts her own signal only if the empirical odds ratio of the own signal being wrong, conditional on all available information, is larger than 2:1, rather than 1:1 as would be implied by rational expectations. … In total, the meta dataset contains 29,923 decisions made by 2,813 participants in 13 studies. All participants observe a private signal and a (possibly empty) string of previous choices made by others in analogous situations. In all decision problems there are two actions and two possible payoffs, but the dataset nevertheless comprises a large variety in environments, instructions, players’ personal characteristics, and histories of other players’ choices. (more)

Of course copying others’ acts sends a bad signal about our confidence in own own info and and analysis abilities. So it can make sense to focus more on one’s own clues to the extent is is important to send a positive signal to observers.  Just beware of assuming too easily that such gains are substantial.

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  • Ray

    That applies to all of us of course and I don’t claim immunity from such thinking, but the first type of person that popped in my mind was the guy that always has to have the alternative product.

    They’d cut off a limb before they bought an ipod or wore a pair of Nikes.

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  • cournot

    But of course, an analogous warning applies to this blog: Don’t assume that the small gains in truth from contrarian and overly analytic thinking flaunted by the author are worth the loss of signaling, identity, social awareness, career success, and group loyalty this type of reasoning tends to produce.

    • Ray

      True, but in the context of wisdom everything eventually comes down to balance.

  • dan

    basit zafar and i have a working paper with similar results from non-experimental data:

    we discuss how reputation concerns could cause results too (ie people may ignore others not just because their wisdom is not appreciated, but to signal confidence in own beliefs to enhance reputation) as robin hanson suggests. but we conclude these effects actually go the other way (reputation concerns can in theory go the other direction, i.e. cause conformity, too)

  • vaniver

    Isn’t this more plausible as suspicion- I value other people’s information only half as much as my own- than as signaling confidence?