Staff Report, Federal Reserve Bank of New York 453
The recent nonexperimental literature on social learning focuses on showing that observational learning exists, that is, individuals do indeed draw inferences by observing the actions of others. We take this literature a step further by analyzing whether individuals are Bayesian social learners. We use data from the Associated Press (AP) U.S. College Football Poll, a weekly subjective ranking of the top twenty-five teams. The voters' aggregate rankings are available each week prior to when voters have to update their individual rankings, so voters can potentially learn from their peers. We find that peer rankings: 1) are informative, as conditioning on them improves the accuracy of our estimated Bayesian posterior rankings in a nontrivial way, and 2) influence the way voters adjust their rankings, but the influence is less than the Bayesian amount. Voters' revisions are closer to Bayesian when the ranked team loses as compared to when it wins, which we attribute to losses being less ambiguous and more salient signals. We find evidence of significant voter heterogeneity, and that voters are less responsive to peer rankings after they have been on the poll a few years. We interpret the data to imply that reputation motives cause voters to 'conform,' but not enough to overcome the overall tendency to underreact to social information, that is, to be 'stubborn.'
Belief Bayesian updating social learning conformity herding peers