Herding with Costly Observation

Klaus Kultti () and Miettinen Paavo A
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Miettinen Paavo A: Bank of Finland and Department of Economics, University of Helsinki, paavo.miettinen@bof.fi

The B.E. Journal of Theoretical Economics, 2007, vol. 7, issue 1, 16

Abstract: We characterize optimal strategies in a simple herding model where observations have a small cost. We assume that there are two states and two possible signals that each agent may get. The prior distribution is biased towards adopting behavior. That is, ex-ante, adopting gives a higher expected utility than not adopting. Contrary to Kultti & Miettinen (2005) herding does not arise deterministically in this model when the cost of observation is small.

Keywords: herding; information acquisition (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (8)

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DOI: 10.2202/1935-1704.1320

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