Information Acquisition and Exchange in Social Networks

25 Pages Posted: 5 May 2012

See all articles by Liangfei Qiu

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Date Written: March 15, 2012

Abstract

This paper develops a framework for the analysis of information acquisition and exchange in social networks. In the static model, there is a symmetric Bayes-Nash Equilibrium where all players use a simple cut-off strategy involving the threshold degree. The inefficiency of information acquisition is caused by free-riding. In the dynamics of information exchange, there is a trade-off between taking immediate action and waiting: A player could wait to receive more information from her second-order neighbors, but the future is discounted. All else being equal, an earlier submission is preferred to a later one. A network-embedded prediction market is an appropriate application of the information network model. Using a variety of simulations of player trading, I show that as the cost of acquiring information decreases, so do the forecasting errors. The implication is similar to the efficient market hypothesis. As more and more players acquire information, the prediction market prices fully incorporate all available information, and thus yield better forecasts.

Keywords: Information Acquisition, Social Networks, Prediction Markets

JEL Classification: D83, D85, C72

Suggested Citation

Qiu, Liangfei, Information Acquisition and Exchange in Social Networks (March 15, 2012). Available at SSRN: https://ssrn.com/abstract=2051292 or http://dx.doi.org/10.2139/ssrn.2051292

Liangfei Qiu (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

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