Pathological Outcomes of Observational Learning
AbstractThis paper explores how Bayes-rational individuals learn sequentially from the discrete actions of others. Unlike earlier informational herding papers, we admit heterogeneous preferences. Not only may type-specific "herds" eventually arise, but a new robust possibility emerges: "confounded learning". Beliefs may converge to a limit point where history offers no decisive lessons for anyone, and each type's actions forever nontrivially split between two actions. To verify that our identified limit outcomes do arise, we exploit the Markov-martingale character of beliefs. Learning dynamics are stochastically stable near a fixed point in many Bayesian learning models like this one.
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Bibliographic InfoArticle provided by Econometric Society in its journal Econometrica.
Volume (Year): 68 (2000)
Issue (Month): 2 (March)
Other versions of this item:
- Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Working papers 96-19, Massachusetts Institute of Technology (MIT), Department of Economics.
- Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Economics Papers 115, Economics Group, Nuffield College, University of Oxford.
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- I20 - Health, Education, and Welfare - - Education - - - General
- I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
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