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Social learning with private and common values

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  • Jacob Goeree
  • Thomas Palfrey
  • Brian Rogers

Abstract

We consider an environment where individuals sequentially choose among several actions. The payoff to an individual depends on her action choice, the state of the world, and an idiosyncratic, privately observed preference shock. Under weak conditions, as the number of individuals increases, the sequence of choices always reveals the state of the world. This contrasts with the familiar result for pure common-value environments where the state is never learned, resulting in herds or informational cascades. The medium run dynamics to convergence can be very complex and non-monotone: posterior beliefs may be concentrated on a wrong state for a long time, shifting suddenly to the correct state. Copyright Springer-Verlag Berlin/Heidelberg 2006

Suggested Citation

  • Jacob Goeree & Thomas Palfrey & Brian Rogers, 2006. "Social learning with private and common values," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 245-264, June.
    • Handle: RePEc:spr:joecth:v:28:y:2006:i:2:p:245-264
    DOI: 10.1007/s00199-005-0642-5
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    Keywords

    Social learning; Information aggregation.;

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