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Learning while voting: determinants of collective experimentation

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Author Info
Bruno Strulovici () (Nuffield College, Oxford University)

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Abstract

This paper analyzes collective decision making when individual preferences evolve through learning. Votes are affected by their anticipated effect on future preferences. The analysis is conducted in a two-arm bandit model with a safe alternative and a risky alternative whose payoff distribution, or “type”, varies across individuals and may be learned through experimentation. Society is shown to experiment less than any of its members would if he could dictate future decisions, and to be systematically biased against experimentation compared to the utilitarian optimum. Control sharing can even result in negative value of experimentation: society may shun a risky alternative even its expected payoff is higher than the safe one’s. Commitment to a fixed alternative can only increase efficiency if aggregate uncertainty is small enough. Even when types are independent, a positive news shock for anyone raises everyone’s incentive to experiment. Ex ante preference correlation or heterogeneity reduces these inefficiencies.

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Publisher Info
Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2008-W08.

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Length: 45 pages
Date of creation: 05 2008
Date of revision:
Handle: RePEc:nuf:econwp:0808

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Web page: http://www.nuff.ox.ac.uk/economics/

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  2. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01. [Downloadable!] (restricted)
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  3. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  4. James Albrecht & Axel Anderson & Susan Vroman, 2007. "Search by Committee," IZA Discussion Papers 3137, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
    • James Albrecht & Axel Anderson & Susan Vroman, 2007. "Search by Committee," Working Papers gueconwpa~07-07-09, Georgetown University, Department of Economics. [Downloadable!]
  5. Kuran, Timur, 1988. "The tenacious past: Theories of personal and collective conservatism," Journal of Economic Behavior & Organization, Elsevier, vol. 10(2), pages 143-171, September. [Downloadable!] (restricted)
  6. Bergemann, Dirk & Hege, Ulrich, 1998. "Venture capital financing, moral hazard, and learning," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 703-735, August. [Downloadable!] (restricted)
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  7. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December. [Downloadable!] (restricted)
  8. Philippe Jehiel & Oliver Compte, 2007. "Bargaining and Majority Rules: A Collective Search Perspective," Levine's Bibliography 843644000000000131, UCLA Department of Economics. [Downloadable!]
  9. David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 751-772, Winter. [Downloadable!] (restricted)
  10. Leland, Hayne E, 1994. " Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-52, September. [Downloadable!] (restricted)
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  11. Matthias Messner & Mattias K. Polborn, 2008. "The Option to Wait in Collective Decisions," Working Papers 338, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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