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Naïve herding in rich-information settings

Eyster, Erik and Rabin, Matthew (2010) Naïve herding in rich-information settings. American Economic Journal: Microeconomics, 2 (4). pp. 221-243. ISSN 1945-7669

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Identification Number: 10.1257/mic.2.4.221

Abstract

In social-learning environments, we investigate implications of the assumption that people naïvely believe that each previous person's action reflects solely that person's private information. Naïve 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, naïve herders can be harmed, on average, by observing others.

Item Type: Article
Official URL: http://www.aeaweb.org/aej-micro/index.php
Additional Information: © 2010 American Economic Association
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 14 Feb 2012 11:29
Last Modified: 02 Jun 2014 09:06
URI: http://eprints.lse.ac.uk/id/eprint/41889

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