Abstract
This paper develops a psychologically micro-founded model of economic learning. Contrary to intuition, it is shown that a large population of boundedly rational learners will, under certain circumstances, aggregate to a fully rational representative agent, even when no individual solves—or even considers—the entire inference problem on their own. The theory places conditions on the emergence of aggregately rationality and characterizes the information-processing frictions that arise when those conditions are not met. This economic implications of the model are developed in the context of a market for Arrow securities, where it is shown that market efficiency depends on the ability of prices to combine the information-processing capacity of many agents.
Published Version
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