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Social learning with private and common values

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Author Info

  • Goeree, Jacob
  • Palfrey, Thomas
  • Rogers, Brian

Abstract

We consider an environment where individuals sequentially choose among several actions. The payoff to an individual depends on her action choice, the state of the world, and an idiosyncratic, privately observed preference shock. Under weak conditions, as the number of individuals increases, the sequence of choices always reveals the state of the world. This contrasts with the familiar result for pure common-value environments where the state is 'never' learned, resulting in herds or informational cascades. The medium run dynamics to convergence can be very complex and non-monotone: posterior beliefs may be concentrated on a wrong state for a long time, shifting suddenly to the correct state.

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Bibliographic Info

Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 1187.

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Length: 29 pages
Date of creation: Nov 2003
Date of revision:
Publication status: Published: Economic Theory, Vol. 28 (2006) p. 245-64.
Handle: RePEc:clt:sswopa:1187

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Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
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Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
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Related research

Keywords: social learning; information cascades; herd behavior;

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Cited by:
  1. Kaufman, Noah, 2014. "Overcoming the barriers to the market performance of green consumer goods," Resource and Energy Economics, Elsevier, vol. 36(2), pages 487-507.
  2. Goeree, Jacob & Palfrey, Thomas & Rogers, Brian & McKelvey, Richard, 2004. "Self-correcting Information Cascades," Working Papers 1197, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Wiseman, Thomas, 2008. "Disagreement leads to complete learning: Sequential choice with continuous types," Economics Letters, Elsevier, vol. 100(1), pages 53-55, July.
  4. Dan Levin & James Peck, 2005. "Investment Dynamics with Common and Private Values," Levine's Bibliography 666156000000000607, UCLA Department of Economics.
  5. Christoph Brunner & Jacob K. Goeree, 2009. "Wise crowds or wise minorities?," IEW - Working Papers 439, Institute for Empirical Research in Economics - University of Zurich.
  6. Bar Ifrach & Costis Maglaras & Marco Scarsini, 2011. "Monopoly Pricing in the Presence of Social Learning," Working Papers 11-11, NET Institute, revised Nov 2011.
  7. S. Ali & Navin Kartik, 2012. "Herding with collective preferences," Economic Theory, Springer, vol. 51(3), pages 601-626, November.
  8. Erik Eyster & Andrea Galeotti & Navin Kartik & Matthew Rabin, 2012. "Congested Observational Learning," Economics Discussion Papers 706, University of Essex, Department of Economics.

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