Inertia in social learning from a summary statistic

Larson, Nathan (2008): Inertia in social learning from a summary statistic.

Abstract

We model normal-quadratic social learning with agents who observe a summary statistic over past actions, rather than complete action histories. Because an agent with a summary statistic cannot correct for the fact that earlier actions influenced later ones, even a small presence of old actions in the statistic can introduce very persistent errors. Depending on how fast these old actions fade from view, social learning can either be as fast as if agents’ private information were pooled (rate n) or it can slow to a crawl (rate ln n). We also examine extensions to learning from samples of actions, learning about a moving target, heterogeneous preferences, and biases toward own information.

• Item Type: MPRA Paper
• Language: English
• Keywords: social learning; herding; speed of learning
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness

References

Daron Acemoglu, Munther Dahleh, Ilan Lobel, and Asuman Ozdaglar. Bayesian learning in social networks. NBER Working Paper W14040, May 2008.

Venkatesh Bala and Sanjeev Goyal. Learning from neighbours. Review of Economic Studies, 65(3):595—621, July 1998.

Abhijit Banerjee. A simple model of herd behavior. Quarterly Journal of Economics, 107(3):797—817, August 1992.

Abhijit Banerjee and Drew Fudenberg. Word of mouth learning. Games and Economic Behavior, 46:1—22, 2004.

Sushil Bikhchandani, David Hirshleifer, and Ivo Welch. A theory of fads, fashion, custom, and cultural change in informational cascades. Journal of Political Economy, 100(5):992—1026, October 1992.

Steven Callander and Johannes Horner. The wisdom of the minority. mimeo, 46, 2006.

Bogachan Celen and Shachar Kariv. Observational learning under incomplete information. Games and Economic Behavior, 47(1):72—86, 2004.

Peter DeMarzo, Dimitri Vayanos, and Jeffrey Zwiebel. Persuasion bias, social influence and uni-dimensional opinions. Quarterly Journal of Economics, 118(3):909—968, 2003.

Esther Duflo and Emmanuel Saez. The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment. Quarterly Journal of Economics, 118(3):815—842, August 2003.

Glenn Ellison and Drew Fudenberg. Rules of thumb for social learning. Journal of Political Economy, 101(4):612—643, 1993.

Glenn Ellison and Drew Fudenberg. Word-of-mouth communication and social learning. Quarterly Journal of Economics, 110(1):93—125, 1995.

Gunther Eysenbach, John Powell, Oliver Kuss, and Eun-Ryoung Sa. Empirical studies assessing the quality of health information for consumers on the world wide web. JAMA: The Journal of the American Medical Association, 287(20):2691—2700, May 22/29, 2002.

Jacob Goeree, Robert McKelvey, Thomas Palfrey, and Brian Rogers. Self-correcting information cascades. Review of Economic Studies, 74(3):733—62, July 2007.

Micheline Maynard. A mistaken news report hurts united. New York Times, September 8 2008.

Kaivan Munshi. Social learning in a heterogeneous population: technology diffusion in the indian green revolution. Journal of Development Economics, 73(1):185 — 213, 2004.

Lones Smith and Peter Sorensen. Pathological outcomes of observational learning. Econometrica, 68(2):371—398, March 2000.

Lones Smith and Peter Sorensen. Rational social learning with random sampling. mimeo, 2008.

James Surowiecki. The Wisdom of Crowds. 2004.

Xavier Vives. How fast do rational agents learn? Review of Economic Studies, 60(2):329—47, April 1993.

Georg Weizsäcker. Do we follow others when we should? a simple test of rational expectations. American Economic Review, 100(5):2340—60, December 2010.