Sequential Learning under Informational Ambiguity

Abstract

This paper studies a sequential social learning problem in which individuals are ambiguous about other people’s data-generating processes. This paper finds that the occurrence of an information cascade can be interpreted as a result of ambiguity instead of details of the true data-generating process or its perception, as suggested by the literature. When there is sufficient ambiguity, an information cascade occurs almost surely for all possible data-generating processes. This paper further shows that standard results that feature no cascade may be fragile to arbitrarily small ambiguity.

Keywords: Social learning, information cascades, ambiguity, herding

JEL Classification: D81, D83, C72