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Rational Herds: Economic Models of Social…

Rational Herds: Economic Models of Social Learning

by Christophe P. Chamley

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Very sloppy. Riddled with outright errors, undefined notation, and other flaws.

For example, in a proof by contradiction on page 49, Chamley assumes that constant-gain learning implies convergence of agents' beliefs to zero variability over time. Really, Chamley? Have you even read any of the economic learning literature outside your own fumbling attempts?

And in his very first example of Bayesian inference, he uses this bizarre assumption: In making a report to the police about a car accident, a witness doesn't report what he observed; rather, he reports his Bayesian inference about what he observed, as if it were his observation. Chamley’s point is that this causes information to be mis-used by the society, under some circumstances, but the entire problem is an artifact of the weird assumption about the witness's behavior!

Furthermore, the assumption that the witness is a rational Bayesian implies the witness will follow the same reasoning that Chamley follows. So the witness knows that his method of reporting is socially suboptimal… but he does it anyway! For a witness that is purely disinterested (as Chamley assumes), that makes no sense.

It is especially strange that Chamley offers this invalid example, because there are plenty of valid examples in which rational agents use information suboptimally in equilibrium.

Sad, this could have been a useful book. As it is, though: Stay away. ( )
  Adaptive_Agent | Jul 21, 2013 |
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Amazon.com Product Description (ISBN 052153092X, Paperback)

Social learning involves individuals learning from the behavior of others and may lead to spectacular outcomes such as herding, fads, frenzies, crashes, and booms. Providing a synthesis of the theoretical literature of the last ten years, Christophe Chamley demonstrates how these pathologies may occur in a society of rational individuals. His book provides informal as well as technical analyses for readers interested in social behavior, and more advanced researchers in economics, finance, and other social sciences. A key feature is the inclusion of exercises in each chapter, with proofs written out for students.

(retrieved from Amazon Thu, 12 Mar 2015 18:24:48 -0400)

This book is the first in the exciting new field of social learning.

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