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Social learning with private and common values

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  • Jacob Goeree

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  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. S. Ali & Navin Kartik, 2012. "Herding with collective preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 601-626.
    2. repec:eee:gamebe:v:104:y:2017:i:c:p:392-410 is not listed on IDEAS
    3. Eyster, Erik & Galeotti, Andrea & Kartik, Navin & Rabin, Matthew, 2014. "Congested observational learning," Games and Economic Behavior, Elsevier, vol. 87(C), pages 519-538.
    4. Jacob K. Goeree & Thomas R. Palfrey & Brian W. Rogers & Richard D. McKelvey, 2007. "Self-Correcting Information Cascades," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 733-762.
    5. repec:esx:essedp:706 is not listed on IDEAS
    6. Kaufman, Noah, 2014. "Overcoming the barriers to the market performance of green consumer goods," Resource and Energy Economics, Elsevier, vol. 36(2), pages 487-507.
    7. Wu, Jiemai, 2015. "Helpful laymen in informational cascades," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 407-415.
    8. Wiseman, Thomas, 2008. "Disagreement leads to complete learning: Sequential choice with continuous types," Economics Letters, Elsevier, vol. 100(1), pages 53-55, July.
    9. Edward Cartwright, 2007. "Social Learning, Search and Heterogeneity of Payoffs," Studies in Economics 0705, School of Economics, University of Kent.
    10. Levin, Dan & Peck, James, 2008. "Investment dynamics with common and private values," Journal of Economic Theory, Elsevier, vol. 143(1), pages 114-139, November.
    11. Bar Ifrach & Costis Maglaras & Marco Scarsini, 2011. "Monopoly Pricing in the Presence of Social Learning," Working Papers 11-11, NET Institute, revised Nov 2011.
    12. Christoph Brunner & Jacob K. Goeree, 2009. "Wise crowds or wise minorities?," IEW - Working Papers 439, Institute for Empirical Research in Economics - University of Zurich.

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    Keywords

    Social learning; Information aggregation.;

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