observational learning

Lones Smith and Peter Norman Sørensen
Authors registered in the RePEc Author Service: Peter Norman Sørensen

from Palgrave Macmillan

Abstract: Observational learning occurs when privately informed individuals sequentially choose among finitely many actions after seeing predecessors’ choices. We summarise the general theory of this paradigm: belief convergence forces action convergence; specifically, copycat ‘herds’ arise. Also, beliefs converge to a point mass on the truth exactly when the private information is not uniformly bounded.This subsumes two key findings of the original herding literature: With multinomial signals, cascades occur, where individuals rationally ignore their private signals, and incorrect herds start with positive probability. The framework is flexible – some individuals may be committed to an action, or individuals may have divergent cardinal or even ordinal preferences.

Keywords: action herd; experimentation; information aggregation; informational cascade; informational herding; limit cascade; Markov process; martingale; observational learning; social learning; stochastic difference equation (search for similar items in EconPapers)
JEL-codes: D8 D83 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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