The Impact of Interaction and Social Learning on Aggregate Expectations
- 111 Downloads
We examine the effect of information sharing within small world networks. Agents receive a signal correlated with the state of the world (SoW) which is adjusted following discussions with neighbours. If one agent in the network, referred to as an expert, does not engage in social learning (that is they always follow their own signal) then all agents learn the SoW. It is found that volatility in the mean level of expectations varies with changes in the number of experts and the network structure. A trade-off emerges between the level of volatility and the speed at which agents learn of changes to the SoW. A second finding is that certain network structures lead to information cascades.
KeywordsSocial learning Expectations formation Network economics Information contagion Volatility
JEL ClassificationD82 D83
Unable to display preview. Download preview PDF.
- Chevalier, J. A., & Mayzlin, D. (2003). The effect of word of mouth on sales: Online book reviews. National Bureau of Economic Research Inc., NBER Working Papers 10148.Google Scholar
- Ivkovich, Z., & Weisbenner, S. (2004). Information diffusion effects in individual investors’ common stock purchases: Covet thy neighbors’ investment choices. National Bureau of Economic Research Inc., NBER Working Papers 10436.Google Scholar
- Jackson M.O., Rogers B.W. (2005). The economics of small worlds. Journal of the European Economic Association, 3(2–3): 617–627Google Scholar
- Tesfatsion, L. (2006). Agent-based computational economics: A constructive approach to economic theory. In L. Tesfatsion & K. L. Judd (Eds.), Handbook of computational economics vol. 2: Agent-based computational economics. Elsevier, North-Holland.Google Scholar
- Watts D.J. (1999). Small worlds: The dynamics of networks between order and randomness. Princeton University Press, New JerseyGoogle Scholar