Learning from Neighbors About a Changing State

Abstract

Abstract. Agents learn about a changing state using private signals and past actions of neighbors in a network. We characterize equilibrium learning and social influence in this setting. We then examine when agents can aggregate information well, responding quickly to recent changes. A key sufficient condition for good aggregation is that each individual's neighbors have sufficiently different types of private information. In contrast, when signals are homogeneous, aggregation is suboptimal on any network. We also examine behavioral versions of the model, and show that achieving good aggregation requires a sophisticated understanding of correlations in neighbors' actions. The model provides a Bayesian foundation for a tractable learning dynamic in networks, closely related to the DeGroot model, and offers new tools for counterfactual and welfare analyses.

Keywords: Social Learning, Bayesian Learning, DeGroot Model, Information Aggregation, Networks, Centrality