Technology diffusion by learning from neighbours

Abstract

In this paper, we consider a model of social learning in a population of myopic, memoryless agents. The agents are placed at integer points on an infinite line. Each time period, they perform experiments with one of two technologies, then each observes the outcomes and technology choices of the two adjacent agents as well as his own outcome. Two learning rules are considered; it is shown that under the first, where an agent changes his technology only if he has had a failure (a bad outcome), the society converges with probability 1 to the better technology. In the other, where agents switch on the basis of the neighbourhood averages, convergence occurs if the better technology is sufficiently better. The results provide a surprisingly optimistic conclusion about the diffusion of the better technology through imitation, even under the assumption of extremely boundedly rational agents.