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Informational Asymmetries and Observational Learning in Search

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Author Info
Liran Einav ()
Abstract

As economics modeling moves from super rational decision makers to considering boundedly rational agents, some economic problems deserve a second look. This paper studies the effects of learning on the efficiency of search. Once learning is taken into account, the structure of information flow becomes important. In particular, I highlight the truncated information structure in the search problem. Agents stop searching once a sufficiently attractive price is found. Therefore, they observe the performance of shorter searches, but do not directly observe the performance of longer searches. I design and conduct an experiment to test the hypothesis that this asymmetric flow of information leads agents to search too little. I find strong evidence in its favor. This suggests that in the presence of learning, the provision of a more symmetric information structure will make search more efficient. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11166-005-6563-7
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Publisher Info
Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 30 (2005)
Issue (Month): 3 (May)
Pages: 241-259
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jrisku:v:30:y:2005:i:3:p:241-259

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Web page: http://www.springerlink.com/link.asp?id=100299

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Related research
Keywords: search; learning; experiment; regret;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May. [Downloadable!] (restricted)
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  2. Moon, Philip & Martin, Andrew, 1996. "The search for consistency in economic search," Journal of Economic Behavior & Organization, Elsevier, vol. 29(2), pages 311-321, March. [Downloadable!] (restricted)
  3. Hey, John D., 1982. "Search for rules for search," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 65-81, March. [Downloadable!] (restricted)
  4. Berg, Joyce E, et al, 1986. "Controlling Preferences for Lotteries on Units of Experimental Exchange," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 281-306, May. [Downloadable!] (restricted)
  5. Selten, Reinhard & Joachim Buchta, 1994. "Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions," Discussion Paper Serie B 270, University of Bonn, Germany.
  6. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December. [Downloadable!] (restricted)
  7. Sergiu Hart & Andreu Mas-Colell, 2000. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Econometrica, Econometric Society, vol. 68(5), pages 1127-1150, September.
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  8. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
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Cited by:
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  1. Marcela Ibanez & Simon Czermak & Matthias Sutter, . "Searching for a better deal – On the influence of group decision making, time pressure and gender in a search experiment," Working Papers 2008-05, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
    Other versions:
  2. Gijs Kuilen & Peter Wakker, 2006. "Learning in the Allais paradox," Journal of Risk and Uncertainty, Springer, vol. 33(3), pages 155-164, December. [Downloadable!] (restricted)
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