Social Learning with Costly Search

30 Pages Posted: 26 Oct 2012 Last revised: 10 May 2014

See all articles by Manuel Mueller-Frank

Manuel Mueller-Frank

University of Navarra, IESE Business School

Mallesh Pai

University of Pennsylvania

Date Written: May 9, 2014

Abstract

We study a sequential social learning model where agents privately acquire information by costly search. Search costs of agents are private to them, and are independently and identically distributed. We show that asymptotic learning occurs if and only if search costs are not bounded away from zero. We explicitly characterize the speed of learning for the case of two actions, and show that the probability of late moving agents taking the suboptimal action vanishes at a linear rate. Social welfare converges to the social optimum as the discount rate converges to one if and only if search costs are not bounded away from zero.

Keywords: social learning, search with recall, herding, informational cascasdes, asymptotic learning

JEL Classification: D80, D83

Suggested Citation

Mueller-Frank, Manuel and Pai, Mallesh, Social Learning with Costly Search (May 9, 2014). Available at SSRN: https://ssrn.com/abstract=2166925 or http://dx.doi.org/10.2139/ssrn.2166925

Manuel Mueller-Frank (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Mallesh Pai

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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