The Wisdom of the Minority

That later agents follow the herd of earlier actions is a central insight of research into economic cascades and social learning. We consider a variant of the standard model in which agents are differentially informed and observe only the market shares of the competing alternatives, and not the entire decision sequence. In this environment we show that following the herd is often not equilibrium behavior and that agents are better served following the minority, even if they themselves possess no private information and the minority consists of a lone dissenter. In such cases, therefore, the minority is wiser than the majority.