Social learning with local interactions
AbstractWe study a simple dynamic model of social learning with local informational exter-nalities. There is a large population of agents, who repeatedly have to choose one, out of two, reversible actions, each of which is optimal in one, out of two, unknown states of the world. Each agent chooses rationally, on the basis of private information (s)he receives by a symmetric binary signal on the state, as well as the observation of the action chosen among their nearest neighbours. Actions can be updated at revision opportunities that agents receive in a random sequential order. Strategies are stationary, in that they do not depend on time, nor on location. We show that: if agents receive equally informative signals, and observe both neighbours, then the social learning process is not adequate and the process of actions converges ex-ponentially fast to a conï¿½guration where some agents are permanently wrong; if agents are unequally informed, in that their signal is either fully informative or fully uninformative (both with positive probability), and observe one neighbour, then the social learning process is adequate and everybody will eventually choose the action that is correct given the state. Convergence, however, obtains very slowly, namely at rate pt: We relate theï¿½findings with the literature on social learning and discuss the property of effciency of the information transmission mechanism under local interaction. Keywords; social learning, bayesian learning, local informational external-ities, path dependence, consensus, clustering, convergence Rates
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Bibliographic InfoPaper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 1011.
Date of creation: 11 Jun 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-CTA-2010-08-06 (Contract Theory & Applications)
- NEP-EVO-2010-08-06 (Evolutionary Economics)
- NEP-GTH-2010-08-06 (Game Theory)
- NEP-URE-2010-08-06 (Urban & Real Estate Economics)
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