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Dimensionality and Disagreement: Asymptotic Belief Divergence in Response to Common Information

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Abstract

We provide a model of boundedly-rational, multidimensional learning in which divergence occurs when "equivocal" observations are frequent, but convergence occurs when such observations are rare. Because the information is of lower dimension than the model, agents face an identification problem affecting the role of data in inference. Because the model is high-dimensional, boundedly rational agents maintain marginal beliefs rather than beliefs over the whole state space. As a result, learning need not be consistent. Robustly, two agents with differing priors who observe identical, unambiguous information may disagree forever, with stronger disagreement the more information received.

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  • Isaac Loh & Gregory Phelan, 2016. "Dimensionality and Disagreement: Asymptotic Belief Divergence in Response to Common Information," Department of Economics Working Papers 2016-18, Department of Economics, Williams College, revised Jul 2018.
  • Handle: RePEc:wil:wileco:2016-18
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    File URL: http://web.williams.edu/Economics/wp/LohPhelanDimensionalityDisagreement.pdf
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    References listed on IDEAS

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    1. Péter Kondor, 2012. "The More We Know about the Fundamental, the Less We Agree on the Price," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1175-1207.
    2. James Andreoni & Tymofiy Mylovanov, 2012. "Diverging Opinions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 209-232, February.
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    Cited by:

    1. Ceren Baysan, 2017. "Can More Information Lead to More Voter Polarization? Experimental Evidence from Turkey," 2017 Papers pba1551, Job Market Papers.
    2. Benoît, Jean-Pierre & Dubra, Juan, 2018. "When do populations polarize? An explanation," MPRA Paper 86173, University Library of Munich, Germany.

    More about this item

    Keywords

    Heterogeneous beliefs; divergence; learning; Bayesian updating; bounded rationality; sparsity;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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