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Coordination and Social Learning

Chong Huang ()
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Chong Huang: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper studies the interaction between coordination and social learning in a dynamic regime change game. Social learning provides public information to which players overreact due to the coordination motive. So coordination affects the aggregation of private signals through players' optimal choices. Such endogenous provision of public information results in inefficient herds with positive probability, even though private signals have an unbounded likelihood ratio property. Therefore, social learning is a source of coordination failure. An extension shows that if players could individually learn, inefficient herding disappears, and thus coordination is successful almost surely. This paper also demonstrates that along the same history, the belief convergence differs in different equilibria. Finally, social learning can lead to higher social welfare when the fundamentals are bad.

Keywords: Coordination; social learning; inefficient herding; dynamic global game; common belief (search for similar items in EconPapers)
JEL-codes: C72 C73 D82 D83 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-08-05
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-evo, nep-gth, nep-mic, nep-net and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:11-021

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