European Business Schools Librarian's Group

HEC Research Papers Series,
HEC Paris

No 1433: Stationary social learning in a changing environment

Raphaël Levy, Marcin Pęski and Nicolas Vieille
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Raphaël Levy: HEC Paris
Marcin Pęski: University of Toronto - Department of Economics
Nicolas Vieille: HEC Paris

Abstract: We consider social learning in a changing world. With changing states, societies can remain responsive only if agents regularly act upon fresh information, which drastically limits the value of observational learning. When the state is close to persistent, a consensus whereby most agents choose the same action typically emerges. However, the consensus action is not perfectly correlated with the state, because societies exhibit inertia following state changes. Phases of inertia may be longer when signals are more precise, even if agents draw large samples of past actions, as actions then become too correlated within samples, thereby reducing informativeness and welfare.

Keywords: observational learning; herding

JEL-codes: D83

70 pages, January 19, 2022

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