A Practical Approach to Social Learning

Document pages: 15 pages

Abstract: Models of social learning feature either binary signals or abstract signalstructures often deprived of micro-foundations. Both models are limited whenanalyzing interim results or performing empirical analysis. We present a methodof generating signal structures which are richer than the binary model, yet aretractable enough to perform simulations and empirical analysis. We demonstratethe method s usability by revisiting two classical papers: (1) we discuss theeconomic significance of unbounded signals Smith and Sorensen (2000); (2) weuse experimental data from Anderson and Holt (1997) to perform econometricanalysis. Additionally, we provide a necessary and sufficient condition for theoccurrence of action cascades.