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Whom to Observe?

  • Bøg, Martin

This paper considers the problem of a decision maker who is faced with a dynamic decision problem with several alternatives, and additionally can engage in prior consultation on one of the alternatives. Information received from others is coarse. When consulting on an alternative that the decision maker is pre-disposed to, she either consults someone that shares precisely her convictions, or she consults someone who is more ”picky” than herself. Optimality depends on the attractiveness of alternatives; when another alternative becomes sufficiently attractive the decision maker prefers a picky contact. When the decisionmaker consults on a lower ranked alternative, optimal consulting depends non-monotonically on the value of the alternative she is pre-disposed to. For high and low values of the pre-disposed alternative she prefers to consult someone with her own convictions, but for medium values she prefers to consult a picky contact. Finally a decision maker may prefer to consult on a lower ranked alternative.

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File URL: http://mpra.ub.uni-muenchen.de/8773/1/MPRA_paper_8773.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8773.

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Date of creation: 01 Dec 2006
Date of revision: 14 May 2008
Handle: RePEc:pra:mprapa:8773
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  1. Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Wing Suen, 2004. "The Self-Perpetuation of Biased Beliefs," Economic Journal, Royal Economic Society, vol. 114(495), pages 377-396, 04.
  3. Martin W. Cripps & Godfrey Keller & Sven Rady, 2002. "Strategic Experimentation: The Case of Poisson Bandits," CESifo Working Paper Series 737, CESifo Group Munich.
  4. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  5. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
  6. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  7. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  8. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
  9. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
  10. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
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