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Social Learning Through Endogenous Information Acquisition: An Experiment

Author

Listed:
  • Bogaçhan Çelen

    () (Graduate School of Business, Columbia University, New York, New York 10027)

  • Kyle Hyndman

    () (Department of Economics, Maastricht University, Maastricht 6211 LM, The Netherlands)

Abstract

This paper provides a test of a theory of social learning through endogenous information acquisition. A group of subjects face a decision problem under uncertainty. Subjects are endowed with private information about the fundamentals of the problem and make decisions sequentially. The key feature of the experiment is that subjects can observe the decisions of predecessors by forming links at a cost. The model predicts that the average welfare is enhanced in the presence of a small cost. Our experimental results support this prediction. When the informativeness of signals changes across treatments, behavior changes in accordance with the theory. However, within treatments, there are important deviations from rationality such as a tendency to conform and excessive link formation. Given these biases, our results indicate that subjects would, except when faced with a small cost, have been better off not forming any links. This paper was accepted by Teck Ho, behavioral economics.

Suggested Citation

  • Bogaçhan Çelen & Kyle Hyndman, 2012. "Social Learning Through Endogenous Information Acquisition: An Experiment," Management Science, INFORMS, vol. 58(8), pages 1525-1548, August.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:8:p:1525-1548
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1506
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    References listed on IDEAS

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