Author(s): James C.D. Fisher, Department of Economics, University of Arizona and John Wooders, Economics Discipline Group, UTS Business School, University of Technology, Sydney and
Date of publication: January 2015
Working paper number: 27
Abstract: When a decision maker is a member of multiple social groups, her actions may cause information to ìspill overî from one group to another. We study the nature of these spillovers in an observational learning game where two groups interact via a common player, and where conventions emerge when players follow the decisions of the members of their own groups rather than their own private information. We show that: (i) if a convention develops in one group but not the other group, then the convention spills over via the common player; (ii) when conventions disagree, then the common playerís decision breaks the convention in one group; and (iii) when no conventions have developed, then the common playerís decision triggers conventions on the same action in both groups. We also Önd that information spillovers may reduce welfare.