Misinterpreting Others and the Fragility of Social Learning

Mira Frick (), Ryota Iijima () and Yuhta Ishii ()
Additional contact information
Mira Frick: Cowles Foundation, Yale University
Ryota Iijima: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/ryota-iijima

No 2160R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We exhibit a natural environment, social learning among heterogeneous agents, where even slight misperceptions can have a large negative impact on long-run learning outcomes. We consider a population of agents who obtain information about the state of the world both from initial private signals and by observing a random sample of other agents' actions over time, where agents' actions depend not only on their beliefs about the state but also on their idiosyncratic types (e.g., tastes or risk attitudes). When agents are correct about the type distribution in the population, they learn the true state in the long run. By contrast, we show, first, that even arbitrarily small amounts of misperception about the type distribution can generate extreme breakdowns of information aggregation, where in the long run all agents incorrectly assign probability 1 to some fixed state of the world, regardless of the true underlying state. Second, any misperception of the type distribution leads long-run beliefs and behavior to vary only coarsely with the state, and we provide systematic predictions for how the nature of misperception shapes these coarse long-run outcomes. Third, we show that how fragile information aggregation is against misperception depends on the richness of agents' payoff-relevant uncertainty; a design implication is that information aggregation can be improved by simplifying agents' learning environment. The key feature behind our findings is that agents' belief-updating becomes "decoupled" from the true state over time. We point to other environments where this feature is present and leads to similar fragility results.

Keywords: Misspecification; Social learning; Information aggregation; Fragility (search for similar items in EconPapers)
JEL-codes: C70 D80 D83 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2019-01, Revised 2020-03
New Economics Papers: this item is included in nep-exp
Note: Includes Supplimental Material
References: Add references at CitEc
Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Misinterpreting Others and the Fragility of Social Learning (2020)
Working Paper: Misinterpreting Others and the Fragility of Social Learning (2019)
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