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Social Learning with Coarse Inference

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Author Info

  • Antonio Guarino
  • Philippe Jehiel

Abstract

We study social learning by boundedly rational agents. Agents take a decision in sequence, after observing their predecessors and a private signal. They are unable to make perfect inferences from their predecessors' decisions: they only understand the relation between the aggregate distribution of actions and the state of nature, and make their inferences accordingly. We show that, in a discrete action space, even if agents receive signals of unbounded precision, there are asymptotic inefficiencies. In a continuous action space, compared to the rational case, agents overweight early signals. Despite this behavioral bias, eventually agents learn the realized state of the world and choose the correct action. (JEL D82, D83)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.147
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 5 (2013)
Issue (Month): 1 (February)
Pages: 147-74

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Handle: RePEc:aea:aejmic:v:5:y:2013:i:1:p:147-74

Note: DOI: 10.1257/mic.5.1.147
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References

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  1. Georg Weizsacker, 2008. "Do we follow others when we should? A simple test of rational expectations," LSE Research Online Documents on Economics 4945, London School of Economics and Political Science, LSE Library.
  2. Steffen Huck & Joerg Oechssler, 1997. "Informational Cascades with Continuous Action Spaces," Game Theory and Information 9710002, EconWPA.
  3. Philippe Jehiel & Frederic Koessler, 2005. "Revisiting Games of Incomplete Information with Analogy-Based Expectations," THEMA Working Papers 2005-04, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Philippe Jehiel, 2005. "Analogy-Based Expectation Equilibrium," Levine's Bibliography 784828000000000106, UCLA Department of Economics.
  5. Ignacio Monzon & Michael Rapp, 2011. "Observational Learning with Position Uncertainty," Carlo Alberto Notebooks 206, Collegio Carlo Alberto.
  6. Peter M. Demarzo & Dimitri Vayanos & Jeffrey Zwiebel, 2003. "Persuasion Bias, Social Influence, And Unidimensional Opinions," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 909-968, August.
  7. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  8. G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
  9. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
  10. Antonio Guarino & Steffen Huck & Heike Harmgart, 2008. "When half the truth is better than the truth: A Theory of aggregate information cascades," WEF Working Papers 0046, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  11. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  12. Antonio Guarino & Philippe Jehiel, 2013. "Social Learning with Coarse Inference," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 147-74, February.
  13. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
  14. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
  15. Dorothea K¸bler & Georg Weizs”cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 425-441, 04.
  16. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
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Citations

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Cited by:
  1. Erik Eyster & Matthew Rabin, 2010. "Na�ve Herding in Rich-Information Settings," American Economic Journal: Microeconomics, American Economic Association, vol. 2(4), pages 221-43, November.
  2. Antonio Guarino & Philippe Jehie, 2009. "Social Learning with Coarse Inference," Levine's Working Paper Archive 814577000000000292, David K. Levine.
  3. Antonio Guarino & Antonella Ianni, 2010. "Bayesian Social Learning with Local Interactions," Games, MDPI, Open Access Journal, vol. 1(4), pages 438-458, October.
  4. Guarino, Antonio & Harmgart, Heike & Huck, Steffen, 2011. "Aggregate information cascades," Games and Economic Behavior, Elsevier, vol. 73(1), pages 167-185, September.
  5. repec:hal:wpaper:halshs-00572528 is not listed on IDEAS
  6. Christoph March, 2011. "Adaptive social learning," PSE Working Papers halshs-00572528, HAL.

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