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Rational and Naive Herding

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  • Eyster, Erik
  • Rabin, Matthew

Abstract

In social-learning environments, we investigate implications of the assumption that people naively believe that each previous person's action reflects solely that person's private information, leading them to systematically imitate all predecessors even in the many circumstances where rational agents do not. Naive herders inadvertently over-weight early movers' private signals by neglecting that interim herders' actions also embed these signals. They herd with positive probability on incorrect actions across a broad array of rich-information settings where rational players never do, and---because they become fully confident even when wrong---can be harmed on average by observing others.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7351.

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Date of creation: Jul 2009
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Handle: RePEc:cpr:ceprdp:7351

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Related research

Keywords: Cursed equiliibrium; Herding; Naive inference; Social Learning;

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  1. Jacob Goeree & Thomas Palfrey & Brian Rogers, 2004. "Self-Correcting Information Cascades," Levine's Bibliography 122247000000000153, UCLA Department of Economics.
  2. repec:bla:restud:v:74:y:2007:i:3:p:733-762 is not listed on IDEAS
  3. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
  4. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
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