Belief Error and Non-Bayesian Social Learning: Experimental Evidence

Bo\u{g}a\c{c}han \c{C}elen, Sen Geng and Huihui Li
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Bo\u{g}a\c{c}han \c{C}elen: University of Melbourne

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Abstract: This paper experimentally studies whether individuals hold a first-order belief that others apply Bayes' rule to incorporate private information into their beliefs, which is a fundamental assumption in many Bayesian and non-Bayesian social learning models. We design a novel experimental setting in which the first-order belief assumption implies that social information is equivalent to private information. Our main finding is that participants' reported reservation prices of social information are significantly lower than those of private information, which provides evidence that casts doubt on the first-order belief assumption. We also build a novel belief error model in which participants form a random posterior belief with a Bayesian posterior belief kernel to explain the experimental findings. A structural estimation of the model suggests that participants' sophisticated consideration of others' belief error and their exaggeration of the error both contribute to the difference in reservation prices.

Date: 2020-11
New Economics Papers: this item is included in nep-cbe and nep-exp
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http://arxiv.org/pdf/2011.09640 Latest version (application/pdf)

Related works:
Working Paper: Belief Error and Non-Bayesian Social Learning: An Experimental Evidence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2011.09640

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