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Interacting Information Cascades: On the Movement of Conventions Between Groups

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When a decision maker is a member of multiple social groups, her actions may cause information to spill overfrom one group to another. We study the nature of these spillovers in an observational learning game where two groups interact via a common player, and where conventions emerge when players follow the decisions of the members of their own groups rather than their own private information. We show that: (i) if a convention develops in one group but not the other group, then the convention spills over via the common player; (ii) when conventions disagree, then the common players decision breaks the convention in one group; and (iii) when no conventions have developed, then the common players decision triggers conventions on the same action in both groups. We also nd that information spillovers may reduce welfare.

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File URL: http://www.uts.edu.au/sites/default/files/Interacting01162015web.pdf
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Paper provided by Economics Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 27.

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Length: 53 pages
Date of creation: 16 Jan 2015
Handle: RePEc:uts:ecowps:27
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