Learning by Matching

Manuel Amador and Pierre-Olivier Weill ()

No 373, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We study how a continuum of agents learn about disseminated information in a dynamic beauty contest model when they do not observe aggregate variables, such as prices or quantities, but randomly observe each other's actions. We solve for the market equilibrium and find that the average learning curve is S-shaped: learning is slow initially, intensifies rapidly and finally converges slowly to the truth. We show that increasing public information always slows down learning in the long run. Under some conditions, even if agents have no coordination motive, it also reduces welfare. Lastly, optimal diffusion of information requires that agents ``strive to be different'': agents need to be rewarded for choosing actions away from the population average

Keywords: Learning; Search and Matching (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Date: 2006-12-03

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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:373

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