Social learning with private and common values

Jacob Goeree, Thomas Palfrey and Brian Rogers

No 1187, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

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.

Keywords: social learning; information cascades; herd behavior (search for similar items in EconPapers)
Pages: 29 pages
Date: 2003-11
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Published: Economic Theory, Vol. 28 (2006) p. 245-64.

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