Informational Asymmetries and Observational Learning in Search

Liran Einav

Journal of Risk and Uncertainty, 2005, vol. 30, issue 3, 259 pages

Abstract: As economics modeling moves from super rational decision makers to considering boundedly rational agents, some economic problems deserve a second look. This paper studies the effects of learning on the efficiency of search. Once learning is taken into account, the structure of information flow becomes important. In particular, I highlight the truncated information structure in the search problem. Agents stop searching once a sufficiently attractive price is found. Therefore, they observe the performance of shorter searches, but do not directly observe the performance of longer searches. I design and conduct an experiment to test the hypothesis that this asymmetric flow of information leads agents to search too little. I find strong evidence in its favor. This suggests that in the presence of learning, the provision of a more symmetric information structure will make search more efficient. Copyright Springer Science + Business Media, Inc. 2005

Keywords: search; learning; experiment; regret (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s11166-005-6563-7

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