Do Markets Drive Out Lemmings—or Vice Versa?

John Hey and Andrea Morone

Chapter 21 in Experiments in Economics:Decision Making and Markets, 2018, pp 467-489 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper investigates experimentally a market inspired by two strands of literature: on herd behaviour in non-market situations, and on the aggregation of private information in markets. The first strand suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the price mechanism may cause the private information to be aggregated correctly and efficiently. This latter therefore suggests that socially undesirable behaviour may be eliminated through the market. We test this experimentally, and find that socially undesirable behaviour may result: the market is misled by agents privately optimizing.

Keywords: Experimental Economics; Risk; Ambiguity; Markets; Auctions; Bargaining; Econometrics; Methodology (search for similar items in EconPapers)
JEL-codes: C90 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (45)

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