Perverse ethical concerns: Misinformation and coordination

Abstract

We study a coordination game played by a large number of agents, who acquire private signals about a hidden state on a platform before choosing individual actions. The platform privately and imperfectly filters misinformation, improving the precision of these signals. We show that a platform with an ethical concern to proactively improve agents' welfare could perversely reduce their welfare by aggravating their disagreements about the state and in turn undermining coordination. We also show that misinformation regulations aimed at improving agents' welfare are effective if and only if their implementation is sufficiently aggressive.