Whom to Observe?

Martin Bøg ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: bandit problem; observational learning; heterogeneity (search for similar items in EconPapers)
JEL-codes: D83 C7 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm and nep-gth
Date: 2006-12-01, Revised 2008-05-14
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:8773

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