Learning from Private and Public Observation of Other's Actions
AbstractWe study how a continuum of agents learn about disseminated information by observing others’ actions. Every period each agent observes a public and private noisy signal centered around the aggregate action taken by the population. The public signal represents an endogenous aggregate variable such as a price or a quantity. The private signal represents the information gathered through private communication and local interactions. We identify conditions such that the average learning curve is S-shaped: learning is slow initially, intensifies rapidly, and finally converges slowly to the truth. We show that increasing public information always slows down learning in the long run and, under some conditions, reduces welfare. Lastly, optimal diffusion of information requires that agents “strive to be different”: agents need to be rewarded for choosing actions away from the population average.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 109.
Date of creation: 15 Jun 2006
Date of revision:
Learning externality; welfare cost of public information;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-04 (All new papers)
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