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A General Model of Boundedly Rational Observational Learning: Theory and Experiment

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Abstract

This paper introduces a new general model of boundedly rational observational learning: Quasi-Bayesian updating. The approach is applicable to any environment of observational learning and is rationally founded. We conduct a laboratory experiment and find strong supportive evidence for Quasi-Bayesian updating. We analyze the theoretical long run implications of Quasi-Bayesian updating in a model of repeated interaction in social networks with binary actions. We provide a characterization of the environment in which consensus and information aggregation is achieved. The experimental evidence is in line with our theoretical predictions. Finally, we establish that for any environment information aggregation fails in large networks.

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  • Mueller-Frank, Manuel & Arieliy, Itai, 2015. "A General Model of Boundedly Rational Observational Learning: Theory and Experiment," IESE Research Papers D/1120, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-1120
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    File URL: http://www.iese.edu/research/pdfs/WP-1120-E.pdf
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    Cited by:

    1. Dasaratha, Krishna & He, Kevin, 2021. "An experiment on network density and sequential learning," Games and Economic Behavior, Elsevier, vol. 128(C), pages 182-192.
    2. Bohren, J. Aislinn, 2016. "Informational herding with model misspecification," Journal of Economic Theory, Elsevier, vol. 163(C), pages 222-247.
    3. Dasaratha, Krishna & He, Kevin, 2020. "Network structure and naive sequential learning," Theoretical Economics, Econometric Society, vol. 15(2), May.

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    More about this item

    Keywords

    social networks; naive learning; bounded rationality; experiments; consensus; information aggregation;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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