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Optimizing Information in the Herd: Guinea Pigs, Profit and Welfare

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Author Info

  • Sgroi, D.

Abstract

Herding arises when an agent's private informationis swamped by public information in what Jackson and Kalai (1997) call a recurring game. The agent will fail to reveal his own information and will follow the actions of his predecessor and, as a result, useful information is lost, which might have highlighted a better choice for later decision-makers. This paper evaluates the strategy of forcing a sub-set of agents to make their decision early from the perspective of a social planner, and a firm with a valuable or valueless procuct. Promotional activity by firms can be explained as an attemps to overcome the herd externality and maximize sales.

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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2000-w14.

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Length: 24 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:nuf:econwp:2000-w14

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Web page: http://www.nuff.ox.ac.uk/economics/

Related research

Keywords: HERDING ; INFORMATIONAL CASCADES ; LEARNING ; SOCIAL WELFARE ; PROMOTIONAL COMPAIGNS;

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  1. Matthew Jackson & Ehud Kalai, 1995. "Social Learning in Recurring Games," Discussion Papers 1138, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  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.
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