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Imitation in Heterogeneous Populations

Hedlund, Jonas ; Oyarzun, Carlos

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Abstract

We study a boundedly rational model of imitation when payoff distributions of actions differ across types of individuals. Individuals observe others’ actions and payoffs, and a comparison signal. One of two inefficiencies always arises: (i) uniform adoption, i.e., all individuals choose the action that is optimal for one type but sub-optimal for the other, or (ii) dual incomplete learning, i.e., only a fraction of each type chooses its optimal action. Which one occurs depends on the composition of the population and how critical the choice is for different types of individuals. In an application, we show that a monopolist serving a population of boundedly rational consumers cannot fully extract the surplus of high-valuation consumers, but can sell to consumers who do not value the good.

Item Type: Working paper
Series Name: Discussion Paper Series, University of Heidelberg, Department of Economics
Volume: 0625
Place of Publication: Heidelberg
Date Deposited: 25 Nov 2016 07:34
Date: November 2016
Number of Pages: 46
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: Imitation,heterogeneouspopulations,boundedrationality,Fubiniextension.
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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