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Learning from Private and Public Observation of Other's Actions

Author

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  • Amador, Manuel
  • Weill, Pierre-Olivier

Abstract

We study how a continuum of agents learn about disseminated information by observing others’ actions. Every period each agent observes a public and private noisy signal centered around the aggregate action taken by the population. The public signal represents an endogenous aggregate variable such as a price or a quantity. The private signal represents the information gathered through private communication and local interactions. We identify conditions such that the average learning curve is S-shaped: learning is slow initially, intensifies rapidly, and finally converges slowly to the truth. We show that increasing public information always slows down learning in the long run and, under some conditions, reduces welfare. Lastly, optimal diffusion of information requires that agents “strive to be different”: agents need to be rewarded for choosing actions away from the population average.

Suggested Citation

  • Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:109
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    File URL: https://mpra.ub.uni-muenchen.de/109/1/MPRA_paper_109.pdf
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    Citations

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    Cited by:

    1. George-Marios Angeletos & Luigi Iovino & Jennifer La'O, 2011. "Cycles, Gaps, and the Social Value of Information," Levine's Working Paper Archive 786969000000000293, David K. Levine.
    2. George-Marios Angeletos & Alessandro Pavan, 2009. "Policy with Dispersed Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 11-60, March.
    3. Vives, Xavier, 2011. "Endogenous Public Information and Welfare," CEPR Discussion Papers 8437, C.E.P.R. Discussion Papers.
    4. Alessandra Fogli & Laura Veldkamp, 2011. "Nature or Nurture? Learning and the Geography of Female Labor Force Participation," Econometrica, Econometric Society, vol. 79(4), pages 1103-1138, July.
    5. George-Marios Angeletos & Jennifer La'O, 2011. "Decentralization, Communication, and the Origins of Fluctuations," Levine's Working Paper Archive 786969000000000111, David K. Levine.
    6. Sorensen, Morten, 2007. "Learning by Investing: Evidence from Venture Capital," SIFR Research Report Series 53, Institute for Financial Research.
    7. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2010. "The relative contributions of private information sharing and public information releases to information aggregation," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1574-1601, July.
    8. Marcello Miccoli, 2012. "Optimal dynamic public communication," Temi di discussione (Economic working papers) 856, Bank of Italy, Economic Research and International Relations Area.
    9. Alessandra Fogli & Laura Veldkamp, 2007. "Nature or nurture? learning and female labor force dynamics," Staff Report 386, Federal Reserve Bank of Minneapolis.
    10. Raquel Fernandez, 2007. "Culture as Learning: The Evolution of Female Labor Force Participation over a Century," NBER Working Papers 13373, National Bureau of Economic Research, Inc.
    11. Raquel Fernandez, 2009. "Culture as Learning: The Evolution of Female Labor Force Participation over a Century," 2009 Meeting Papers 78, Society for Economic Dynamics.
    12. Goldstein, Itay & Ozdenoren, Emre & Yuan, Kathy, 2013. "Trading frenzies and their impact on real investment," Journal of Financial Economics, Elsevier, vol. 109(2), pages 566-582.
    13. Fernández, Raquel, 2007. "Culture as Learning: The Evolution of Female Labour Force Participation Over a Century," CEPR Discussion Papers 6451, C.E.P.R. Discussion Papers.
    14. George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2010. "Beauty Contests and "Irrational Exuberance": A Neoclassical Approach," Discussion Papers 1502, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Kathy Yuan & Emre Ozdenoren & Itay Goldstein, 2008. "Learning and Complementarities: Implications for Speculative Attacks," 2008 Meeting Papers 276, Society for Economic Dynamics.
    16. Manuel Amador & Pierre-Olivier Weill, 2010. "Learning from Prices: Public Communication and Welfare," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 866-907.
    17. Xavier Vives, 2017. "Endogenous Public Information and Welfare in Market Games," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 935-963.
    18. Mikhail Golosov & Guido Lorenzoni & Aleh Tsyvinski, 2014. "Decentralized Trading With Private Information," Econometrica, Econometric Society, vol. 82(3), pages 1055-1091, May.
    19. Mankiw, N. Gregory & Reis, Ricardo, 2010. "Imperfect Information and Aggregate Supply," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 5, pages 183-229 Elsevier.
    20. Luis Araujo & Raoul Minetti, 2010. "Markets and Relationships in a Learning Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 687-700, July.
    21. George-Marios Angeletos & Jennifer La'O, 2011. "Optimal Monetary Policy with Informational Frictions," NBER Working Papers 17525, National Bureau of Economic Research, Inc.
    22. George-Marios Angeletos & Jennifer La'O, 2010. "Noisy Business Cycles," NBER Chapters,in: NBER Macroeconomics Annual 2009, Volume 24, pages 319-378 National Bureau of Economic Research, Inc.
    23. Guido Lorenzoni, 2007. "News Shocks and Optimal Monetary Policy," NBER Working Papers 12898, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Learning externality; welfare cost of public information;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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