Naive Social Learning, Mislearning, and Unlearning

Abstract

We study social learning in several natural, yet under-explored, environments among people who naively think each predecessor’s action reflects solely that person’s private information. Such naivete leads to striking forms of mislearning, yielding states of the world that agents always come to disbelieve even when true. In such states, even when an early generation learns the truth, later generations will “unlearn” and develop false beliefs. We demonstrate manifestations of this result in a variety of settings. When the qualities of alternatives are independent, naive inference polarizes perceptions—people overestimate the quality of one option and underestimate the quality of all the others. We show how these “extreme” perceptions lead to under-diversified investments and excessive herding among consumers with diverse tastes.