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Behavioral Biases, Informational Externalities, and Efficiency in Endogenous-Timing Herding Games: an Experimental Study

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Author Info

  • Asen Ivanov

    ()
    (Department of Economics, VCU School of Business)

  • Dan Levin

    ()
    (Department of Economics, The Ohio State University)

  • James Peck

    ()
    (Department of Economics, The Ohio State University)

Abstract

We experimentally study behavior in an endogenous-timing herding game. We find that subjects respond to their type and to observed investment activity in a sensible way, but there are also substantial departures from NE. Some departures can be viewed as mere noise in decision making while other departures represent systematic biases reflecting subjects’ failure to appreciate subtle aspects of the game. We explore the implications of the observed departures from NE for informational externalities and market efficiency.

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Bibliographic Info

Paper provided by VCU School of Business, Department of Economics in its series Working Papers with number 1004.

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Length: 49 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:vcu:wpaper:1004

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  1. Peck, James, 1988. "On the existence of sunspot equilibria in an overlapping generations model," Journal of Economic Theory, Elsevier, vol. 44(1), pages 19-42, February.
  2. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
  3. Asen Ivanov & Dan Levin & James Peck, 2009. "Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values," American Economic Review, American Economic Association, vol. 99(4), pages 1484-1507, September.
  4. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," Experimental 0502002, EconWPA.
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  9. 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.
  10. Dan Levin & James Peck, 2005. "Investment Dynamics with Common and Private Values," Levine's Bibliography 666156000000000607, UCLA Department of Economics.
  11. Stahl, Dale II & Wilson, Paul W., 1994. "Experimental evidence on players' models of other players," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 309-327, December.
  12. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  13. Daniel Sgroi, 2000. "The Right Choice at the Right Time: A Herding Experiment in Endogenous Time," Economics Series Working Papers 2000-W15, University of Oxford, Department of Economics.
  14. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
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  16. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
  17. 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.
  18. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
  19. John Duffy & Eric O'N. Fisher, 2005. "Sunspots in the Laboratory," American Economic Review, American Economic Association, vol. 95(3), pages 510-529, June.
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