Conform or Reveal? The Effect of Misspecified Beliefs on Behaviour (joint with Matthew Robertson)

We study the implications of belief misspecification in social settings without communication. Players trade off conforming to the average action and matching their private type, which is correlated with the state of nature. In a random order, each player takes a public action. We contrast individual and aggregate behaviour under three levels of misspecification: credulous players believe others truthfully reveal their type; sophisticated players reflect on predecessors’ actions to edit the history of play; and, rational players know the extent to which others wish to conform. We apply our results to organisational decision-making and social engineering, and show that a policy maker can nudge a credulous player to become sophisticated to increase truth telling. A nudge to rationality, in contrast, does not guarantee that more players truthfully reveal. At the aggregate level, a rationality nudge is necessary to incentivise players to adopt a positive social norm. Making the state common knowledge can be a viable alternative whenever a policy maker prefers truth telling if and only if a player’s type matches the state.