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The Implications of Pricing on Social Learning

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  • Itai Arieli
  • Moran Koren
  • Rann Smorodinsky

Abstract

We study the implications of endogenous pricing for learning and welfare in the classic herding model . When prices are determined exogenously, it is known that learning occurs if and only if signals are unbounded. By contrast, we show that learning can occur when signals are bounded as long as non-conformism among consumers is scarce. More formally, learning happens if and only if signals exhibit the vanishing likelihood property introduced bellow. We discuss the implications of our results for potential market failure in the context of Schumpeterian growth with uncertainty over the value of innovations.

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  • Itai Arieli & Moran Koren & Rann Smorodinsky, 2019. "The Implications of Pricing on Social Learning," Papers 1905.03452, arXiv.org.
    • Handle: RePEc:arx:papers:1905.03452
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    References listed on IDEAS

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    Cited by:

    1. Amir Ban & Moran Koren, 2020. "Sequential Fundraising and Mutual Insurance," Papers 2005.10711, arXiv.org, revised Dec 2021.
    2. Koren, Moran & Mueller-Frank, Manuel, 2022. "The welfare costs of informationally efficient prices," Games and Economic Behavior, Elsevier, vol. 131(C), pages 186-196.
    3. Zikai Xu, 2022. "Observational Learning with Competitive Prices," Papers 2202.06425, arXiv.org, revised May 2022.

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