Using Neurological Evidence to Differentiate between Informational and Social Herding among Strategic Mortgage Defaulters

Michael Seiler () and Eric Walden ()
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Eric Walden: Texas Tech University

Journal of Real Estate Research, 2016, vol. 38, issue 3, 453-472

Abstract: Great debate is being waged between whether strategic mortgage defaulters follow a herd for social reasons or mimic others' behavior for informational gain purposes. Using functional Magnetic Resonance Imaging (fMRI), the latest neurological technology allowing for observation of brain activity during strategic mortgage default decision-making, we find that when defaulters learn of peer default behavior, they acknowledge the social component of the decision, but feel freer to make their own decisions. Alternatively, when observing the behavior of a maven (real estate expert), borrowers still consider the social aspect of the decision (although to a lesser extent), but ultimately follow the maven who presumably possesses a greater information set. Alarmingly, borrowers only significantly follow the herd when mavens advocate strategic default, not when they recommend against it.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2016
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Journal Article: Using Neurological Evidence to Differentiate between Informational and Social Herding among Strategic Mortgage Defaulters (2016)
Working Paper: Using Neurological Evidence to Differentiate between Informational and Social Herding among Strategic Mortgage Defaulters (2016)
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