Learning from Neighbors
When payoffs from different actions are unknown, agents use their own past experience as well as the experience of their neighbors to guide their current decision making. This paper develops a general framework to study the relationship between the structure of information flows and the process of social learning. We show that in a connected society, local learning ensures that all agents obtain the same utility, in the long run. We develop conditions under which this utility is the maximal attainable, i.e. optimal actions are adopted. This analysis identifies a structural property of information structures -- local independence -- which greatly facilitates social learning. Our analysis also suggests that there exists a negative relationship between the degree of social integration and the likelihood of diversity. Simulations of the model generate spatial and temporal patterns of adoption that are consistent with empirical work.
|Date of creation:||01 Jan 1995|
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- Aghion, Philippe & Espinosa, Maria Paz & Jullien, Bruno, 1993.
"Dynamic Duopoly with Learning through Market Experimentation,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(3), pages 517-39, July.
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- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992.
"A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades,"
Journal of Political Economy,
University of Chicago Press, vol. 100(5), pages 992-1026, October.
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- Ellison, Glenn & Fudenberg, Drew, 1993.
"Rules of Thumb for Social Learning,"
3196332, Harvard University Department of Economics.
- Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
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- G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
- Bala, Venkatesh & Goyal, Sanjeev, 1994. "The Birth of a New Market," Economic Journal, Royal Economic Society, vol. 104(423), pages 282-90, March.
- Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
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