Rational and Naive Herding

Matthew Rabin and Erik Eyster

No 7351, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In social-learning environments, we investigate implications of the assumption that people naively believe that each previous person's action reflects solely that person's private information, leading them to systematically imitate all predecessors even in the many circumstances where rational agents do not. Naive herders inadvertently over-weight early movers' private signals by neglecting that interim herders' actions also embed these signals. They herd with positive probability on incorrect actions across a broad array of rich-information settings where rational players never do, and---because they become fully confident even when wrong---can be harmed on average by observing others.

Keywords: Cursed equiliibrium; Herding; Naive inference; Social learning (search for similar items in EconPapers)
JEL-codes: B49 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://cepr.org/publications/DP7351 (application/pdf)

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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:7351

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7351

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().