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Social Learning with Costly Search

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  • Manuel Mueller-Frank
  • Mallesh M. Pai

Abstract

We study a sequential social learning model where agents privately acquire information by costly search. Search costs of agents are private, and are independently and identically distributed. We show that asymptotic learning occurs if and only if search costs are not bounded away from zero. We explicitly characterize equilibria for the case of two actions, and show that the probability of late moving agents taking the suboptimal action vanishes at a linear rate. Social welfare converges to the social optimum as the discount rate converges to one if and only if search costs are not bounded away from zero. (JEL D81, D83)

Suggested Citation

  • Manuel Mueller-Frank & Mallesh M. Pai, 2016. "Social Learning with Costly Search," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 83-109, February.
    • Handle: RePEc:aea:aejmic:v:8:y:2016:i:1:p:83-109
    Note: DOI: 10.1257/mic.20130253
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bobkova, Nina & Mass, Helene, 2022. "Two-dimensional information acquisition in social learning," Journal of Economic Theory, Elsevier, vol. 202(C).
    2. Daniel Garcia & Sandro Shelegia, 2018. "Consumer search with observational learning," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 224-253, March.
    3. Harry Pei, 2020. "Reputation Building under Observational Learning," Papers 2006.08068, arXiv.org, revised Nov 2020.
    4. Jin Huang, 2017. "To Glance or to Peruse: Observational and Active Learning from Peer Consumers," Working Papers wp2017_1716, CEMFI.
    5. Ali, S. Nageeb, 2018. "Herding with costly information," Journal of Economic Theory, Elsevier, vol. 175(C), pages 713-729.
    6. , & ,, 2015. "Information diffusion in networks through social learning," Theoretical Economics, Econometric Society, vol. 10(3), September.
    7. Carlo Reggiani & Alejandro Saporiti & Lois Simanjuntak, 2018. "Social Information and Consumer Heterogeneity," Economics Discussion Paper Series 1813, Economics, The University of Manchester.
    8. Annie Liang & Xiaosheng Mu, 2018. "Overabundant Information and Learning Traps," PIER Working Paper Archive 18-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 27 Mar 2018.
    9. Jin Huang, 2017. "To Glance or to Peruse: Observational and Active Learning from Peer Consumers," Working Papers wp2018_1716, CEMFI.
    10. Mueller-Frank, Manuel & Arieliy, Itai, 2015. "Social Learning and the Vanishing Value of Private Information," IESE Research Papers D/1119, IESE Business School.
    11. Saori CHIBA, 2018. "Hidden Profiles and Persuasion Cascades in Group Decision-Making," Discussion papers e-18-001, Graduate School of Economics , Kyoto University.
    12. Jacob Glazer & Ilan Kremer & Motty Perry, 2021. "The Wisdom of the Crowd When Acquiring Information Is Costly," Management Science, INFORMS, vol. 67(10), pages 6443-6456, October.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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