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Social learning with private and common values

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Author Info
Goeree, Jacob
Palfrey, Thomas
Rogers, Brian

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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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File URL: http://www.hss.caltech.edu/SSPapers/sswp1187c.pdf
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Publisher 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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Related research
Keywords: social learning; information cascades; herd behavior;

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This paper has been announced in the following NEP Reports: 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. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December. [Downloadable!] (restricted)
  2. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October. [Downloadable!] (restricted)
  3. Jackson, Matthew O. & Kalai, Ehud, 1997. "Social Learning in Recurring Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 102-134, October. [Downloadable!] (restricted)
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  4. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  5. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
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Full references

Cited by:
(explanations, 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. Jacob K. Goeree & Thomas R. Palfrey & Brian W. Rogers & Richard D. McKelvey, 2006. "Self-Correcting Information Cascades," Levine's Bibliography 321307000000000211, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Christoph Brunner & Jacob K. Goeree, 2009. "Wise crowds or wise minorities?," IEW - Working Papers iewwp439, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  3. Paolo Balduzzi, 2005. "Optimal use of scarce information: When partisan voters are socially useful," Working Papers 87, University of Milano-Bicocca, Department of Economics, revised Mar 2005. [Downloadable!]
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This page was last updated on 2009-11-19.

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