Essays in learning and the revelation of private information.

Learning from the actions of others and responding to these actions in an optimal manner is a fundamental component of human behavior and is the focus of this dissertation. The first chapter (Reputation Effects, Sequential Cascades and Speculative Investment) examines a series of events where, in each event, individuals endowed with private information act in sequence to select or reject a project with uncertain payoff. Leaders in these events may emerge and be open to external manipulation. Leader reputations will be affected by project cost and can be manipulated by project producers to influence future events. Whether due to direct manipulation or exogenous changes in project price relative to expected payoff, changes in leader reputations will affect the probability of project acceptance. This model is applied to the market for initial public offerings as well as capital investment decisions and cyclical production patterns. The second chapter (Endogenous Local Interaction and Convergence in Learning Models) focuses on individuals that play coordination games with one another. The emphasis is on opponent (or partner) selection and the impact of this selection on the stability of each of multiple Nash equilibria. Local opponent selection, when mandatory, has been shown to stabilize the risk-dominant equilibrium and de-stabilize other equilibria. In this chapter the process of opponent selection is endogenous. The result is an increase in the stability of the efficient equilibrium, regardless of whether the efficient equilibrium is risk-dominant. The third chapter (Misfits and Social Progress, co-authored with David Hirshleifer) examines the impact of social 'misfits' in a model where individuals, possibly endowed with private information, act in sequence to select or reject a project with uncertain payoff. We find that the ultimate precision of information aggregated publicly is largely independent of the fraction of 'normal' individuals that are privately informed. This level is, however, increased by the presence of misfits, who therefore are important in improving social knowledge. We also examine the conditions under which misfits would be welcomed or ostracized by the other members of society.Ph.D.Economic theoryEconomicsFinanceSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/131498/2/9909956.pd