Naïïve Herding in Rich-Information Settings
In social-learning environments, we investigate implications of the assumption that people naïïvely believe that each previous person's action reflects solely that person's private information. Naïïve herders inadvertently over-weight early movers' private signals by neglecting that i...
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Veröffentlicht in: | American economic journal. Microeconomics 2010-11, Vol.2 (4), p.221 |
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Hauptverfasser: | , |
Format: | Artikel |
Sprache: | eng |
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Zusammenfassung: | In social-learning environments, we investigate implications of the assumption that people naïïvely believe that each previous person's action reflects solely that person's private information. Naïïve herders inadvertently over-weight early movers' private signals by neglecting that interim herders' actions also embed these signals. Such "social confirmation bias" leads them to herd with positive probability on incorrect actions even in extremely rich-information settings where rational players never do. Moreover, because they become fully confident even when wrong, naïïve herders can be harmed, on average, by observing others. (JEL D82, D83) [PUBLICATION ABSTRACT] |
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ISSN: | 1945-7669 1945-7685 |
DOI: | 10.1257/mic.2.4.221 |