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Social Learning with Payoff Complementarities

  • Amil Dasgupta

    (Yale University)

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    We incorporate strategic complementarities into a multi-agent sequential choice model with observable actions and private information. In this framework agents are concerned with learning from predecessors, signalling to successors, and coordinating their actions with those of others. Coordination problems have hitherto been studied using static coordination games which do not allow for learning behavior. Social learning has been examined using games of sequential action under uncertainty, but in the absence of strategic complementarities (herding models). Our model captures the strategic behavior of static coordination games, the social learning aspect of herding models, and the signalling behavior missing from both of these classes of models in one unified framework. In sequential action problems with incomplete information, agents exhibit herd behavior if later decision makers assign too little importance to their private information, choosing instead to imitate their predecessors. In our setting we demonstrate that agents may exhibit either strong herd behavior (complete imitation) or weak herd behavior (overoptimism) and characterize the informational requirements for these distinct outcomes. We also characterize the informational requirements to ensure the possibility of coordination upon a risky but socially optimal action in a game with finite but unboundedly large numbers of players.

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    File URL: http://fmwww.bc.edu/RePEc/es2000/0322.pdf
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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0322.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0322
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    1. V.V. Chari & Patrick J. Kehoe, 2003. "Hot money," Staff Report 228, Federal Reserve Bank of Minneapolis.
    2. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
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    4. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
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    7. Maurice Obstfeld, 1997. "Open-Economy Macroeconomics: Developments in Theory and Policy," Working Papers 958, Queen's University, Department of Economics.
    8. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
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    10. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    11. Lee, In Ho, 1998. "Market Crashes and Informational Avalanches," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 741-59, October.
    12. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-66, October.
    13. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
    14. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
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