Economic Theory

, Volume 63, Issue 1, pp 211–231

Interacting information cascades: on the movement of conventions between groups

Research Article

DOI: 10.1007/s00199-016-1013-0

Cite this article as:
Fisher, J.C.D. & Wooders, J. Econ Theory (2017) 63: 211. doi:10.1007/s00199-016-1013-0
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Abstract

When a decision maker is a member of multiple social groups, her actions may cause information to “spill over” from one group to another. We study the nature of these spillovers in an observational learning game where two groups interact via a common player, and where conventions emerge when players follow the decisions of the members of their own groups rather than their own private information. We show that: (i) if a convention develops in one group but not the other group, then the convention spills over via the common player; (ii) when conventions disagree, then the common player’s decision breaks the convention in one group; and (iii) when no convention has developed, then the common player’s decision triggers the same convention in both groups. We also show that information spillovers may reduce welfare, and we investigate the surplus-maximizing timing of spillovers.

Keywords

Cascades Information spillovers Observational learning Social networks 

JEL Classification

C72 D82 D83 D85 

Supplementary material

199_2016_1013_MOESM1_ESM.pdf (461 kb)
Supplementary material 1 (pdf 462 KB)

Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Ford Motor CompanyDearbornUSA
  2. 2.Division of Social ScienceNew York University Abu DhabiAbu DhabiUnited Arab Emirates