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Do Markets Drive Out Lemmings-or Vice Versa?

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  • John D. Hey
  • Andrea Morone

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. Copyright (c) The London School of Economics and Political Science 2004.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 71 (2004)
Issue (Month): 284 (November)
Pages: 637-659

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Handle: RePEc:bla:econom:v:71:y:2004:i:284:p:637-659

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  1. The Tyranny of the Efficient Markets Hypothesis
    by Economics of Contempt in Economics of Contempt on 2008-04-17 15:06:00
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