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Working Paper
Differences of Opinions
This paper presents a generalization of the DeGroot learning rule in which social learning can lead to polarization, even for connected networks. I first develop a model of biased assimilation in which the utility an agent receives from past decisions depends on current beliefs when uncertainty is slow to resolve. I use this model to motivate key features of an agent?s optimization problem subject to scarce private information, which forces the agent to extrapolate using social information. Even when the agent extrapolates under ?scientific? assumptions and all individuals in the network ...
Working Paper
Skewness and Time-Varying Second Moments in a Nonlinear Production Network: Theory and Evidence
This paper studies asymmetry in economic activity in a multisector model with shocks to productivity and labor wedges. Complementarity across inputs—creating nonlinear intersectoral interactions—creates negative skewness. The analysis generates additional predictions—skewness is smaller at the sector than aggregate level, sector-specific shocks are unskewed, and sector centrality rises following negative shocks—and finds empirical support for them. Skewness arising out of intersector interactions helps reconcile differences in skewness at the micro and macro level. Finally, we show ...