Studies on social learning and on motivated beliefs: theory and evidence

Abstract

This thesis contains four chapters presenting theory and empirical evidence for two distinct aspects of human behaviour: social learning and motivated beliefs. I develop a simple theory to revisit the classical social learning models by challenging the assumption of freely available information. My model suggests that when it is costly to acquire information, social learning (herding) is prevalent, and people do not have incentives to acquire private information (e.g. to form their own judgements). Classical information cascade models suggest that although herding is observed, information aggregation is still possible with communication channels (e.g. a survey); however, my model indicates that information aggregation is unattainable because people in the herd do not acquire private information. We then test my model in a laboratory and find that, as predicted, subjects can learn from others successfully. Also, individual heterogeneity exists in: there are herd animals biased against private information, lone wolves who are biased toward it and subjects who behave optimally. In aggregate, there is no overall bias for or against private information. We also document a new cognitive bias involved in processing social information. Individual characteristics, especially the cognitive ability, seems to be a very good indicator of subjects' behaviour. Subjects with higher cognitive scores choose optimal information more frequently and follow information more frequently. Overconfidence can be driven by the consumption motive (e.g. savouring future payoff/self-image) and the instrumental motive (e.g. being optimistic about the outcome of effort for motivation). I develop a simple model incorporating these two motives and suggest that individuals hold a dynamic pattern of overconfidence. Then I conduct an online field experiment with students to test the theory. The experimental findings indicate that students are likely to adopt overconfident beliefs as a commitment device to deal with their self-control problem. However, I do not find evidence for the consumption motive of overconfidence.