Journal
OPERATIONS RESEARCH
Volume 64, Issue 3, Pages 564-584Publisher
INFORMS
DOI: 10.1287/opre.2015.1364
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Funding
- NET Institute
- National Science Foundation [CCF-1216004]
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We study a sequential model of Bayesian social learning in networks in which agents have heterogeneous preferences, and neighbors tend to have similar preferences-a phenomenon known as homophily. We find that the density of network connections determines the impact of preference diversity and homophily on learning. When connections are sparse, diverse preferences are harmful to learning, and homophily may lead to substantial improvements. In contrast, in a dense network, preference diversity is beneficial. Intuitively, diverse ties introduce more independence between observations while providing less information individually. Homophilous connections individually carry more useful information, but multiple observations become redundant.
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