The Impact of Interaction and Social Learning on Aggregate Expectations

Authors:
Mark Bowden;Stuart Mcdonald
Affiliations:
School of Economics, University of Queensland, Brisbane, Australia 4072;School of Economics, University of Queensland, Brisbane, Australia 4072
Venue:
Computational Economics
Year:
2008

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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.