The Social Value of Public Information When Not Everyone is Privately Informed

Previous scholarly work found that increasing public signals’ precision may reduce welfare in beauty-contest settings. In contrast, I find that when only some agents have private signals, the focal power of public signals is enhanced, such that expected social welfare is increasing in the precision of public signals if the measure of privately-informed individuals does not exceed a threshold. Only when almost all agents have private signals will the welfare loss from underutilization of private signals by a subset of agents exceed the welfare gain from increasing the precision of public signals. The results support the continued use of public information campaigns to change agent behavior regarding vaccine hesitancy and social injustices, and may also shed light on why consumer expectations of economic variables consistently differ from professional forecasts. The findings are robust to extensions such as biased perceptions about public signals and costly acquisition of private information