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Learning While Voting: Determinants of Collective Experimentation

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  • Bruno Strulovici

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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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2008-WO8.

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Date of creation: 01 May 2008
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Handle: RePEc:oxf:wpaper:2008-wo8

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  1. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  2. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, 01.
  3. Albrecht, James & Anderson, Axel & Vroman, Susan, 2010. "Search by committee," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1386-1407, July.
  4. 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.
  5. Bergemann, Dirk & Hege, Ulrich, 1997. "Venture Capital Financing, Moral Hazard and Learning," CEPR Discussion Papers 1738, C.E.P.R. Discussion Papers.
  6. Mattias K. Polborn & Matthias Messner, 2008. "The option to wait in collective decisions," 2008 Meeting Papers 397, Society for Economic Dynamics.
  7. Dirk Bergemann & Ulrich Hege, 2001. "The Financing of Innovation: Learning and Stopping," Cowles Foundation Discussion Papers 1292R, Cowles Foundation for Research in Economics, Yale University, revised Oct 2004.
  8. 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.
  9. Olivier Compte & Philippe Jehiel, 2010. "Bargaining and Majority Rules: A Collective Search Perspective," Journal of Political Economy, University of Chicago Press, vol. 118(2), pages 189-221, 04.
  10. 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.
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