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Herd Behavior in Organizations: The Case of Entering an Investment Project

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  • Karbowski, Adam

Abstract

In the following paper the author applies concepts of information economics (hidden characteristics and signaling) to decision-making processes in the hierarchical organizations. The case of entering an investment project by the company is thoroughly examined. The aim of the paper is to identify and explain managerial decision biases and risk of herd behavior formation in hierarchical organizational structures. The explanation is structured in a simple mathematical model and equipped with concise economic discussion.

Suggested Citation

  • Karbowski, Adam, 2011. "Herd Behavior in Organizations: The Case of Entering an Investment Project," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 30, pages 154-161.
    • Handle: RePEc:zbw:espost:128146
    as

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    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
    3. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    4. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-595, September.
    5. John Whalley, 2005. "Rationality, Irrationality and Economic Cognition," CESifo Working Paper Series 1445, CESifo.
    6. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    7. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    herd behavior; decision-making; organizations; information economics;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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