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Social learning with endogenous observation

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  • Song, Yangbo

Abstract

I study the problem of social learning in a model where agents move sequentially. Each agent receives a private signal about the underlying state of the world, observes the past actions in a neighborhood of individuals, and chooses her action attempting to match the true state. In contrast to the most existing literature that assumes an exogenous observation structure, observation in this paper is endogenous. More specifically, each agent must pay a cost to make any observation and can strategically choose the set of actions to observe. I show that when private beliefs are strong relative to cost, observation becomes fully informative if and only if the size of the observed actions extends to infinity. In addition, costly observation may lead to better learning than free observation, and the order of acquiring signal and observation significantly affects the learning pattern.

Suggested Citation

  • Song, Yangbo, 2016. "Social learning with endogenous observation," Journal of Economic Theory, Elsevier, vol. 166(C), pages 324-333.
  • Handle: RePEc:eee:jetheo:v:166:y:2016:i:c:p:324-333
    DOI: 10.1016/j.jet.2016.09.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Information aggregation; Social learning; Herding; Information cascade; Information acquisition;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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