Our analysis reveals that segregation into small, homogeneous groups can be a rational choice that maximizes the amount of information available to an individual. In fact, homophilic segregation can be efficient and even Pareto-optimal for society. Why is that? Our argument builds on the idea that people have not only different information, but also different preferences. These differences in preferences can prevent successful communication, because people do not want to reveal their information to those who are different, and distrust the motives of those who speak to them. It then becomes easier to exchange information in segregated, homogeneous cliques than in large crowds. Echo chambers, though they may cut off potential communication with a great number of people, make actual communication possible, and are hence useful for society.
That is from a new paper by Ole Jann and Christoph Schottmüller. I believe Jann is currently on the job market from Oxford this year. Here is their other paper on the economics of privacy. And from Schottmüller: “The quality of
advice can be highest if the adviser’s competence is uncertain.”