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observational learning

Author

Listed:
  • Lones Smith
  • Peter Norman Sørensen

Abstract

Observational learning occurs when privately informed individuals sequentially choose among finitely many actions after seeing predecessors’ choices. We summarise the general theory of this paradigm: belief convergence forces action convergence; specifically, copycat ‘herds’ arise. Also, beliefs converge to a point mass on the truth exactly when the private information is not uniformly bounded.This subsumes two key findings of the original herding literature: With multinomial signals, cascades occur, where individuals rationally ignore their private signals, and incorrect herds start with positive probability. The framework is flexible – some individuals may be committed to an action, or individuals may have divergent cardinal or even ordinal preferences.

Suggested Citation

  • Lones Smith & Peter Norman Sørensen, 2011. "observational learning," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  • Handle: RePEc:pal:dofeco:v:5:year:2011:doi:3870
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    File URL: http://www.dictionaryofeconomics.com/article?id=pde2011_O000110
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    Cited by:

    1. Hanaki, Nobuyuki & Kirman, Alan & Pezanis-Christou, Paul, 2018. "Observational and reinforcement pattern-learning: An exploratory study," European Economic Review, Elsevier, vol. 104(C), pages 1-21.

    More about this item

    Keywords

    action herd; experimentation; information aggregation; informational cascade; informational herding; limit cascade; Markov process; martingale; observational learning; social learning; stochastic difference equation;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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