Working Paper: NBER ID: w21468
Authors: Arun G. Chandrasekhar; Horacio Larreguy; Juan Pablo Xandri
Abstract: Agents often use noisy signals from their neighbors to update their beliefs about a state of the world. The effectiveness of social learning relies on the details of how agents aggregate information from others. There are two prominent models of information aggregation in networks: (1) Bayesian learning, where agents use Bayes' rule to assess the state of the world and (2) DeGroot learning, where agents instead consider a weighted average of their neighbors' previous period opinions or actions. Agents who engage in DeGroot learning often double-count information and may not converge in the long run. We conduct a lab experiment in the field with 665 subjects across 19 villages in Karnataka, India, designed to structurally test which model best describes social learning. Seven subjects were placed into a network with common knowledge of the network structure. Subjects attempted to learn the underlying (binary) state of the world, having received independent identically distributed signals in the first period. Thereafter, in each period, subjects made guesses about the state of the world, and these guesses were transmitted to their neighbors at the beginning of the following round. We structurally estimate a model of Bayesian learning, relaxing common knowledge of Bayesian rationality by allowing agents to have incomplete information as to whether others are Bayesian or DeGroot. Our estimates show that, despite the flexibility in modeling learning in these networks, agents are robustly best described by DeGroot-learning models wherein they take a simple majority of previous guesses in their neighborhood.
Keywords: Networks; Social Learning; Bayesian Learning; Degroot Learning; Experiments
JEL Codes: C91; C92; C93; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Degroot learning (C92) | actions taken by agents (L85) |
| Bayesian learning (C11) | actions taken by agents (L85) |
| Degroot learning (C92) | individual actions taken by agents (D70) |
| Bayesian learning (C11) | individual actions taken by agents (D70) |
| Degroot learning model preference (C52) | rejection of Bayesian model (C52) |