Fake News, Information Herds, Cascades and Economic Knowledge

The paper addresses the issue of “fake news” through a well-known and widely studied experiment that illustrates possible uses of economics and game theory for understanding the phenomenon. Public news is viewed as an aggregation of decentralized pieces of valuable information about complex events. Success of news systems rests on accumulated investment in trust in news sources. By contrast, fake news involves cases in which news source reliability is not known. The experiment demonstrates how fake news can destroy both the investment in trust and also the benefits that successful news systems provide.