Aggregate uncertainty can lead to incorrect herds
Date
2019-07
Authors
Monzón, Ignacio
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Sosa Escudero, Walter
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
Un continuo de agentes racionales y homogéneos debe elegir entre dos tecnologías. Cada agente recibe una señal privada y observa una muestra de las decisiones de otros agentes en el pasado. Las señales poseen un componente de incertidumbre agregada. Así, el comportamiento agregado no permite inferir con certeza el verdadero estado de la naturaleza. A pesar de esto, las acciones pasadas contienen información, por lo que los agentes basan su decisión en parte en ellas. En consecuencia, malas decisiones pueden perpeturarse en el tiempo: la incertidumbre agregada genera que todos los agentes elijan la tecnología inferiror con probabilidad positiva. En este trabajo derivo explícitamente la decisión de los agentes cuando cada uno observa una muestra de exactamente dos individuos. Muestro además ejemplos de convergencia a la tecnología incorrecta para tamaños de muestra arbitrariamente grandes.
A continuum of homogeneous rational agents choose between two competing technologies. Agents observe a private signal and sample others’ previous choices. Signals have an aggregate component of uncertainty, so aggregate behavior does not necessarily reflect the true state of nature. Nonetheless, agents still find others’ choices informative, and base their decisions partly on others’ behavior. Consequently, bad choices can be perpetuated: aggregate uncertainty makes agents herd on the inferior technology with positive probability. I derive the optimal decision rule when agents sample exactly two individuals. I also present examples with herds on the inferior technology for arbitrarily large sample sizes.
A continuum of homogeneous rational agents choose between two competing technologies. Agents observe a private signal and sample others’ previous choices. Signals have an aggregate component of uncertainty, so aggregate behavior does not necessarily reflect the true state of nature. Nonetheless, agents still find others’ choices informative, and base their decisions partly on others’ behavior. Consequently, bad choices can be perpetuated: aggregate uncertainty makes agents herd on the inferior technology with positive probability. I derive the optimal decision rule when agents sample exactly two individuals. I also present examples with herds on the inferior technology for arbitrarily large sample sizes.
Description
Fil: Monzón, Ignacio. Universidad de San Andrés. Departamento de Economía; Argentina.