Peering into the mist: social learning over an opaque observation network

John Barrdear

No 503, Bank of England working papers from Bank of England

Abstract: I present a model of social learning over an exogenous, directed network that may be readily nested within broader macroeconomic models with dispersed information and combines the attributes that agents (a) act repeatedly and simultaneously; (b) are Bayes-rational; and (c) have strategic interaction in their decision rules. To overcome the challenges imposed by these requirements, I suppose that the network is opaque: agents do not know the full structure of the network, but do know the link distribution. I derive a specific law of motion for the hierarchy of aggregate expectations, which includes a role for network shocks (weighted sums of agents' idiosyncratic shocks). The network causes agents' beliefs to exhibit increased persistence, so that average expectations overshoot the truth following an aggregate shock. When the network is sufficiently (and plausibly) irregular, transitory idiosyncratic shocks cause persistent aggregate effects, even when agents are identically sized and do not trade.

Keywords: Dispersed information; network learning; heterogeneous agents; aggregate volatility (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 D84 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-08-01
New Economics Papers: this item is included in nep-cdm, nep-gth and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Peering into the mist: social learning over an opaque observation network (2014)
Working Paper: Peering into the mist: social learning over an opaque observation network (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0503

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