Social learning with private and common values

Jacob Goeree, Thomas Palfrey and Brian Rogers

Economic Theory, 2006, vol. 28, issue 2, 245-264

Abstract: We consider an environment where individuals sequentially choose among several actions. The payoff to an individual depends on her action choice, the state of the world, and an idiosyncratic, privately observed preference shock. Under weak conditions, as the number of individuals increases, the sequence of choices always reveals the state of the world. This contrasts with the familiar result for pure common-value environments where the state is never learned, resulting in herds or informational cascades. The medium run dynamics to convergence can be very complex and non-monotone: posterior beliefs may be concentrated on a wrong state for a long time, shifting suddenly to the correct state. Copyright Springer-Verlag Berlin/Heidelberg 2006

Keywords: Social learning; Information aggregation. (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (37)

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DOI: 10.1007/s00199-005-0642-5

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