Until recently search theory, describing choices in an uncertain environment, and social learning theory, describing ways individuals interpret information, have developed separately in the literature. Search theory assumes that the only information available to the decision maker is the information generated by her own search, whereas social learning assumes that individuals can learn by observing the behavior of others. However the research on the effect of information on search behavior is rather small. This project contributes to that literature.
The project uses both theory and experiments to explain the effect of external information on search. The problem is defined such that several managers search for the best marketing strategy in a common environment. The managers' behavior is characterized by applying tools developed in search theory and social learning. The theoretical predictions are tested using laboratory experiments, with human subjects as managers and the market environment is represented by a simple search problem. The importance of the lab experiments lies in their ability to confirm or reject our theoretical predictions. Understanding the strengths and weakness of the theory in simple environments illuminates the behavioral differences between theory and reality, and creates a foundation for the study of more complex environments.
Information is ubiquitous and abundant in today's world. Understanding the effect of information on decision making is an important aspect of economic research. This research provides a better understanding on the link between search and social learning. The project explores both the theoretical and behavioral sides of the question and is expected to provide significant insights for future applications. The project also adds search as another dimension to the incentive problem faced by firms with teams of managers. This new perspective is expected to inform new policies regarding information flow and compensation schemes in firms. The results of this project will be available through journals and online distribution. The results will be presented in seminars and conferences in order to initiate more research on the effects of information. This research is a stepping stone towards more extensive research about the connection between choice and information.
