IDEAS home Printed from https://ideas.repec.org/p/pen/papers/15-022.html
   My bibliography  Save this paper

Informational Herding with Model Misspecification, Second Version

Author

Listed:
  • Aislinn Bohren

    () (Department of Economics, University of Pennsylvania)

Abstract

This paper demonstrates that a misspecified model of information processing interferes with long-run learning and allows inefficient choices to persist in the face of contradictory public information. I consider an observational learning environment where agents observe a private signal about a hidden state, and some agents observe the actions of their predecessors. Prior actions aggregate multiple sources of correlated information about the state, and agents face an inferential challenge to distinguish between new and redundant information. When individuals significantly overestimate the amount of new information, beliefs about the state become entrenched and incorrect learning may occur. When individuals sufficiently overestimate the amount of redundant information, beliefs are fragile and learning is incomplete. Learning is complete when agents have an approximately correct model of inference, establishing that the correct model is robust to perturbation. These results have important implications for timing, frequency and strength of policy interventions to facilitate learning.

Suggested Citation

  • Aislinn Bohren, 2014. "Informational Herding with Model Misspecification, Second Version," PIER Working Paper Archive 15-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Nov 2014.
  • Handle: RePEc:pen:papers:15-022
    as

    Download full text from publisher

    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/15-022.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Dorothea Kübler & Georg Weizsäcker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 425-441.
    2. Anthony Ziegelmeyer & Frédéric Koessler & Juergen Bracht & Eyal Winter, 2010. "Fragility of information cascades: an experimental study using elicited beliefs," Experimental Economics, Springer;Economic Science Association, vol. 13(2), pages 121-145, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pen:papers:15-022. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Administrator). General contact details of provider: http://edirc.repec.org/data/deupaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.