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Two Experiments to Test a Model of Herd Behaviour

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  • Louise Allsopp

    ()

  • John Hey

    ()

Abstract

We carry out two experiments to test a model of herd behaviour based on the work of Banerjee (Quarterly Journal of Economics, CVII, 797–817, 1992). He shows that herding occurs as a result of people observing the actions of others and using this information in their own decision rule. In our experiments herding does not occur as frequently as Banerjee predicts. Contrary to his results, the subjects' behaviour appears to depend on the probabilities of receiving a signal and of this signal being correct. Furthermore, Banerjee finds that the pattern of decision making over a number of rounds of the game is volatile whereas we find that decision making is volatile within rounds. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1026537302180
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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 3 (2000)
Issue (Month): 2 (October)
Pages: 121-136

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Handle: RePEc:kap:expeco:v:3:y:2000:i:2:p:121-136

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Web page: http://www.springerlink.com/link.asp?id=102888

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Keywords: herd behaviour; experiments; decision making;

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  1. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December.
  2. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
  3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  4. Shiller, 021Robert J. & Pound, John, 1989. "Survey evidence on diffusion of interest and information among investors," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 47-66, August.
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