Abstract
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.
Similar content being viewed by others
References
Ahn I., Suominen M. (2001). Word-of-mouth communication and community enforcement. International Economic Review, 42(2): 399–415
Bala V., Goyal S. (1998). Learning from neighbours. Review of Economic Studies, 65(3):595–621
Banerjee A. (1992). A simple model of herd behavior. Quarterly Journal of Economics, 107(3):797–817
Banerjee A., Fudenberg D. (2004). Word-of-mouth learning. Games and Economic Behavior, 46(1):1–22
Bikhchandani S., Hirshleifer D., Welch I. (1992). A theory of fads, fashion, custom, and cultural change in informational cascades. Journal of Political Economy, 100(5):992–1026
Calvo-Armengol A., Zenou Y. (2005). Job matching, social network and word-of-mouth communication. Journal of Urban Economics, 57(3):500–522
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.
Cowan R., Jonard N. (2004). Network structure and the diffusion of knowledge. Journal of Economic Dynamics and Control, 28(8): 1557–1575
Ellison G., Fudenberg D. (1995). Word-of-mouth communication and social learning. Quarterly Journal of Economics, 110(1): 93–125
Flieth B., Foster J. (2002). Interactive expectations. Journal of Evolutionary Economics, 12(4):375–395
Foster J. (2000). Competitive selection, self-organisation and Joseph A. Schumpeter. Journal of Evolutionary Economics, 10(3):311–328
Gaio L., Kaniovski Y.M., Zaninotto E. (2002). On bubbling dynamics generated by a stochastic model of herd behavior. Journal of Evolutionary Economics, 12(5):525–538
Gale D., Kariv S. (2003). Bayesian learning in social networks. Games and Economic Behavior, 45(2):329–346
Godes D., Mayzlin D. (2004). Using online conversations to study word-of-mouth communication. Marketing Science, 23(4): 545–560
Goyal S., van der Leij M. J., Moraga-Gonzalez J.L. (2006). Economics: An emerging small world. Journal of Political Economy, 114(2):403–412
Hong H., Kubik J.D., Stein J.C. (2004). Social interaction and stock-market participation. Journal of Finance, 59(1):137–163
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.
Jackson M.O., Rogers B.W. (2005). The economics of small worlds. Journal of the European Economic Association, 3(2–3): 617–627
Kijima M., Uchida Y. (2005). A Markov model for valuing asset prices in a dynamic bargaining market. Quantitative Finance, 5(3): 277–288
Lux T. (1998). The socio-economic dynamics of speculative markets: Interacting agents, chaos, and the fat tails of return distributions. Journal of Economic Behavior and Organization, 33(2): 143–165
Miller J., Page S. (2004). The standing ovation problem. Complexity, 9(5): 8–16
Money R.B. (2000). Word-of-mouth referral sources for buyers of international corporate financial services. Journal of World Business, 35(3): 314–329
Orlean A. (1995). Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion. Journal of Economic Behavior and Organization, 28(2): 257–274
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.
Veldkamp L. (2006). Media frenzies in the market for financial information. American Economic Review, 96(3): 577–601
Watts D.J. (1999). Small worlds: The dynamics of networks between order and randomness. Princeton University Press, New Jersey
Watts D., Strogatz S. (1998). Collective dynamics of ‘small-world’ networks. Nature, 393, 440–442
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Bowden, M., McDonald, S. The Impact of Interaction and Social Learning on Aggregate Expectations. Comput Econ 31, 289–306 (2008). https://doi.org/10.1007/s10614-007-9118-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10614-007-9118-y