Bounded Rationality And Learning: A Framwork and A Robustness Result*

Aislinn Bohren and Daniel Hauser ()
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Daniel Hauser: Department of Economics, Aalto University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We explore model misspecification in an observational learning framework. Individuals learn from private and public signals and the actions of others. An agent's type specifies her model of the world. Misspecified types have incorrect beliefs about the signal distribution, how other agents draw inference and/or others' payoffs. We establish that the correctly specified model is robust in that agents with approximately correct models almost surely learn the true state asymptotically. We develop a simple criterion to identify the asymptotic learning outcomes that arise when misspecification is more severe. Depending on the nature of the misspecification, learning may be correct, incorrect or beliefs may not converge. Different types may asymptotically disagree, despite observing the same sequence of information. This framework captures behavioral biases such as confirmation bias, false consensus effect, partisan bias and correlation neglect, as well as models of inference such as level-k and cognitive hierarchy.

Keywords: Social learning; model misspecification; bounded rationality (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2017-05-01, Revised 2017-05-01
New Economics Papers: this item is included in nep-cbe, nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:17-007

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