Congested Observational Learning
AbstractWe study observational learning in environments with congestion costs: as more of one's predecessors choose an action, the payoff from choosing that action decreases. If congestion on either action can get so large that an agent would prefer to take the other action no matter his beliefs about the state, then herds cannot occur. To the extent that \switching" away from the more popular action also reveals some private information, social learning is improved. The absence of herding is not enough to guarantee complete learning, however, as information cascades can occur through perpetual but uninformative switching between actions. For bounded private beliefs, we provide conditions that guarantee complete learning and conditions that guarantee bounded learning. Congestion costs have ambiguous effects on welfare as measured by the proportion of agents who choose the superior action. We apply our results to markets where congestion costs arise through responsive pricing and to queuing problems where agents dislike waiting for service.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 706.
Date of creation: 01 Mar 2012
Date of revision:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-03 (All new papers)
- NEP-CBE-2012-04-03 (Cognitive & Behavioural Economics)
- NEP-CTA-2012-04-03 (Contract Theory & Applications)
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.:
- S. Ali & Navin Kartik, 2012. "Herding with collective preferences," Economic Theory, Springer, vol. 51(3), pages 601-626, November.
- Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
- Zvika Neeman & Gerhard O. Orosel, 1998.
"Herding and the Winner’s Curse in Markets with Sequential Bidders,"
0092, Boston University - Industry Studies Programme.
- Neeman, Z. & Orosel, G.O., 1998. "Herding and the Winner's Curse in Markets with Sequential Bidders," Papers 92, Boston University - Department of Economics.
- Frederic Koessler & Charles Noussair & Anthony Ziegelmeyer, 2006.
"Parimutuel Betting under Asymmetric Information,"
Papers on Strategic Interaction
2006-05, Max Planck Institute of Economics, Strategic Interaction Group.
- Frederic Koessler & Anthony Ziegelmeyer, 2004. "Parimutuel Betting under Asymmetric Information," Papers on Strategic Interaction 2003-34, Max Planck Institute of Economics, Strategic Interaction Group.
- Frédéric KOESSLER & Anthony ZIEGELMEYER, 2002. "Parimutuel Betting under Asymmetric Information," Working Papers of BETA 2002-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- Jacob Goeree & Thomas Palfrey & Brian Rogers, 2006.
"Social learning with private and common values,"
Springer, vol. 28(2), pages 245-264, 06.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Essex Economics Web Manager).
If references are entirely missing, you can add them using this form.