Lone Wolf or Herd Animal? An Experiment on Choice of Information and Social Learning

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We report on an experiment that distinguishes between rational social learning and behavioral bias. Subjects are asked to correctly guess the current binary state of the world. Differently from other social learning studies, they must choose between receiving a private, noisy signal about the current state or observing the past guesses of other subjects in the prior period. The design varies the persistence of the state across time, which determines whether choosing social or private information is optimal, enabling us to separate subjects who choose optimally from those who excessively use either social information (``herd animals'') or private information (``lone wolves''). We find that a two-parameter rational inattention model with dispersed priors is best at rationalizing the existence of these different behavioral types.