The impact of interaction and social learning on aggregate expectations

Mark Bowden; Stuart McDonald

doi:10.1007/s10614-007-9118-y

The impact of interaction and social learning on aggregate expectations

Mark Bowden, Stuart McDonald

Centre for Decision Research and Experimental Economics China

Research output: Journal Publication › Article › peer-review

13 Citations (Scopus)

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.

Original language	English
Pages (from-to)	289-306
Number of pages	18
Journal	Computational Economics
Volume	31
Issue number	3
DOIs	https://doi.org/10.1007/s10614-007-9118-y
Publication status	Published - Apr 2008

Keywords

Expectations formation
Information contagion
Network economics
Social learning
Volatility

ASJC Scopus subject areas

Economics, Econometrics and Finance (miscellaneous)
Computer Science Applications

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10.1007/s10614-007-9118-y

Cite this

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title = "The impact of interaction and social learning on aggregate expectations",

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.",

keywords = "Expectations formation, Information contagion, Network economics, Social learning, Volatility",

author = "Mark Bowden and Stuart McDonald",

note = "Funding Information: Acknowledgements This paper has benefited from comments made at a presentation to the Department of Economics, Kiel University and participants{\textquoteright} at the conference Computing in Economics and Finance 06. The authors are grateful to Diemo Urbig and the anonymous referee for their useful comments and suggestions. The usual caveat {\textquoteleft}that all errors are the responsibility of the authors{\textquoteright} applies. The research contained in this paper was partially funded by the ARC Centre for Complex Systems.",

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KW - Volatility

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The impact of interaction and social learning on aggregate expectations

Abstract

Keywords

ASJC Scopus subject areas

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