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

Barrdear, John (2014) Peering into the mist: social learning over an opaque observation network. CFM discussion paper series (CFM-DP2014-9). Centre For Macroeconomics, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2014 The Author
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > H Social Sciences (General)
JEL classification: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations; Speculations
Sets: Collections > Economists Online
Research centres and groups > Centre for Macroeconomics
Date Deposited: 22 Jul 2014 09:29
Last Modified: 20 Feb 2019 03:47
Funders: ESCR
URI: http://eprints.lse.ac.uk/id/eprint/58083

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