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Whom to Observe?

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  • Bøg, Martin

Abstract

This paper considers the problem of a decision maker who is faced with a dynamic decision problem with several alternatives, and additionally can engage in prior consultation on one of the alternatives. Information received from others is coarse. When consulting on an alternative that the decision maker is pre-disposed to, she either consults someone that shares precisely her convictions, or she consults someone who is more ”picky” than herself. Optimality depends on the attractiveness of alternatives; when another alternative becomes sufficiently attractive the decision maker prefers a picky contact. When the decisionmaker consults on a lower ranked alternative, optimal consulting depends non-monotonically on the value of the alternative she is pre-disposed to. For high and low values of the pre-disposed alternative she prefers to consult someone with her own convictions, but for medium values she prefers to consult a picky contact. Finally a decision maker may prefer to consult on a lower ranked alternative.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8773.

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Date of creation: 01 Dec 2006
Date of revision: 14 May 2008
Handle: RePEc:pra:mprapa:8773

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Keywords: bandit problem; observational learning; heterogeneity;

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  1. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, Elsevier, vol. 9(2), pages 185-202, October.
  2. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
  3. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages, University of Pennsylvania _068, University of Pennsylvania.
  4. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, Econometric Society, vol. 67(2), pages 349-374, March.
  5. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
  6. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  7. Martin W. Cripps & Godfrey Keller & Sven Rady, 2002. "Strategic Experimentation: The Case of Poisson Bandits," CESifo Working Paper Series 737, CESifo Group Munich.
  8. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1431-51, November.
  9. Wing Suen, 2004. "The Self-Perpetuation of Biased Beliefs," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(495), pages 377-396, 04.
  10. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 15-41, January.
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