Pathological outcomes of observational learning

This paper explores how Bayes-rational individuals learn sequentially from the discrete actions of others. Unlike earlier informational herding papers , we admit heterogeneous preferences. Not only may type-specific "herds" ev entually arise, but a new robust possibility emerges: confounded learning. Beliefs may converge to a limit point where history offers no decisive less ons for anyone, and each type's actions forever nontrivially split between two actions. To verify that our identified limit outcomes do arise, we exploit the Marko v-martingale character of beliefs. Learning dynamics are stochastically sta ble near a fixed point in many Bayesian learning models like this one.