Naïve Herding in Rich-Information Settings

Erik Eyster and Matthew Rabin

American Economic Journal: Microeconomics, 2010, vol. 2, issue 4, pages 221-43

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. (JEL D82, D83)

JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/mic.2.4.221
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.4.221 (application/pdf)
http://www.aeaweb.org/aej/mic/data/2009-0149_data.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:aea:aejmic:v:2:y:2010:i:4:p:221-43

Ordering information: This journal article can be ordered from
http://www.aeaweb.org/subscribe.html

Access Statistics for this article

American Economic Journal: Microeconomics is edited by Andrew Postlewaite

More articles in American Economic Journal: Microeconomics from American Economic Association
Contact information at EDIRC.
Series data maintained by Jane Voros ().