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Controlling the Herd: Applications of Herding Theory

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Author Info

  • D. Sgroi

Abstract

The literature on informational cascades and herding theory has for a decade focused on the externality and suboptimal outcomes generated from decision-making when spaces are coarser than private information spaces. Much of the output has therefore been positive, not normative. This paper redresses this imbalance by detailing several direct applications for marketing and business arising from herding theory. We see that business practices such as encouraging early sales, or selling to groups rather than individual customers, can be justified theoretically by direct application of herding theory.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0106.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0106.

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Length: 30
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:cam:camdae:0106

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Related research

Keywords: informational cascade; herding; marketing strategies;

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References

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  1. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-66, October.
  2. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  3. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
  4. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
  5. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
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Cited by:
  1. Sgroi, D., 2002. "Modelling Experience as Signal Accumulation," Cambridge Working Papers in Economics 0205, Faculty of Economics, University of Cambridge.
  2. Annamaria Fiore & Andrea Morone, 2005. "Is playing alone in the darkness sufficient to prevent informational cascades?," Papers on Strategic Interaction 2005-09, Max Planck Institute of Economics, Strategic Interaction Group.

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