Social Learning with Costly Search
30 Pages Posted: 26 Oct 2012 Last revised: 10 May 2014
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: Suggested Citation