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Social Learning with Coarse Inference

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  • Antonio Guarino
  • Philippe Jehie

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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000292.

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Date of creation: 13 Jul 2009
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Handle: RePEc:cla:levarc:814577000000000292

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  1. Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
  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. Zwiebel, Jeffrey H. & Vayanos, Dimitri & DeMarzo, Peter M., 2001. "Persuasion Bias, Social Influence, and Uni-Dimensional Opinions," Research Papers 1719, Stanford University, Graduate School of Business.
  5. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
  6. Hirshleifer, David & Teoh, Siew Hong, 2001. "Herd Behavior and Cascading in Capital Markets: A Review and Synthesis," MPRA Paper 5186, University Library of Munich, Germany.
  7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  8. 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.
  9. 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.
  10. Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-60, December.
  11. Huck, Steffen & Oechssler, Jorg, 1998. "Informational cascades with continuous action spaces," Economics Letters, Elsevier, vol. 60(2), pages 163-166, August.
  12. 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.
  13. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
  14. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
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Cited by:
  1. Guarino, Antonio & Harmgart, Heike & Huck, Steffen, 2011. "Aggregate information cascades," Games and Economic Behavior, Elsevier, vol. 73(1), pages 167-185, September.
  2. Christoph March, 2011. "Adaptive social learning," Working Papers halshs-00572528, HAL.
  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. Christoph March, 2011. "Adaptive social learning," PSE Working Papers halshs-00572528, HAL.

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