DP12036 Learning with Heterogeneous Misspecified Models: Characterization and Robustness

Author(s): Aislinn Bohren, Daniel Hauser
Publication Date: May 2017
Date Revised: August 2021
Keyword(s): model misspecification, Social learning
JEL(s): D82, D83
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12036

This paper develops a general framework to study how misinterpreting information impacts learning. Our main result is a simple criterion to characterize long-run beliefs based on the underlying form of misspecification. We present this characterization in the context of social learning, then highlight how it applies to other learning environments, including individual learning. A key contribution is that our characterization applies to settings with model heterogeneity and provides conditions for entrenched disagreement. Our characterization can be used to determine whether a representative agent approach is valid in the face of heterogeneity, study how differing levels of bias or unawareness of others' biases impact learning, and explore whether the impact of a bias is sensitive to parametric specification or the source of information. This unified framework synthesizes insights gleaned from previously studied forms of misspecification and provides novel insights in specific applications, as we demonstrate in settings with partisan bias, overreaction, naive learning, and level-k reasoning.