IDEAS home Printed from https://ideas.repec.org/a/bla/econom/v71y2004i284p637-659.html
   My bibliography  Save this article

Do Markets Drive Out Lemmings-or Vice Versa?

Author

Listed:
  • John D. Hey
  • Andrea Morone

Abstract

This paper investigates experimentally a market inspired by two strands of literature: on herd behaviour in non-market situations, and on the aggregation of private information in markets. The first strand suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the price mechanism may cause the private information to be aggregated correctly and efficiently. This latter therefore suggests that socially undesirable behaviour may be eliminated through the market. We test this experimentally, and find that socially undesirable behaviour may result: the market is misled by agents privately optimizing. Copyright (c) The London School of Economics and Political Science 2004.

Suggested Citation

  • John D. Hey & Andrea Morone, 2004. "Do Markets Drive Out Lemmings-or Vice Versa?," Economica, London School of Economics and Political Science, vol. 71(284), pages 637-659, November.
  • Handle: RePEc:bla:econom:v:71:y:2004:i:284:p:637-659
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=ecca&volume=71&issue=284&year=2004&part=null
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Tyranny of the Efficient Markets Hypothesis
      by Economics of Contempt in Economics of Contempt on 2008-04-17 20:06:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Morone, Andrea & Fiore, Annamaria & Sandri, Serena, 2007. "On the absorbability of herd behaviour and informational cascades: an experimental analysis," Dresden Discussion Paper Series in Economics 15/07, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    2. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1403-1426, December.
    3. Beckmann, Daniela & Menkhoff, Lukas & Sawischlewski, Katja, 2006. "Robust lessons about practical early warning systems," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 163-193, February.
    4. Morone, Andrea & Nuzzo, Simone, 2016. "Do Markets (Institutions) Drive Out Lemmings or Vice Versa?," EconStor Preprints 146917, ZBW - German National Library of Economics.
    5. Demirer, Rıza & Kutan, Ali M. & Zhang, Huacheng, 2014. "Do ADR investors herd?: Evidence from advanced and emerging markets," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 138-148.
    6. Nuzzo, Simone & Morone, Andrea, 2017. "Asset markets in the lab: A literature review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 13(C), pages 42-50.
    7. Alfarano, Simone & Camacho, Eva & Petrovic, Marko & Provenzano, Giulia, 2014. "The Interplay between Public and Private Information in Asset Markets: Theoretical and Experimental Approaches," FinMaP-Working Papers 9, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    8. Alfarano, Simone & Camacho, Eva & Morone, Andrea, 2015. "Do investors rely too much on public information to be justified by its accuracy? An experimental study," FinMaP-Working Papers 30, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    9. Morone, Andrea & Nuzzo, Simone, 2015. "Market Efficiency, Trading Institutions and Information Mirages: evidence from an experimental asset market," MPRA Paper 67448, University Library of Munich, Germany.
    10. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1403-1426, December.
    11. Antonio Filippin, 2003. "Discrimination and workers' expectations: experimental evidence," Departmental Working Papers 2003-16, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    12. Simone Alfarano & Iván Barreda-Tarrazona & Eva Camacho-Cuena, 2006. "On the role of heterogeneous and imperfect information in a laboratory financial market," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 14(4), pages 417-433, December.
    13. Giovanni Ferri & Andrea Morone, 2014. "The effect of rating agencies on herd behaviour," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(1), pages 107-127, April.
    14. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
    15. Meroz, Yael & Morone, Andrea & Morone, Piergiuseppe, 2009. "Eliciting environmental preferences of Ghanaians in the laboratory: An incentive-compatible experiment," MPRA Paper 17107, University Library of Munich, Germany.
    16. Yuecheng Yu & Alexander Pelaez & Karl R. Lang, 2016. "Designing and evaluating business process models: an experimental approach," Information Systems and e-Business Management, Springer, vol. 14(4), pages 767-789, November.
    17. Jason Shachat & Anand Srinivasan, 2011. "Informational Price Cascades and Non-aggregation of Asymmetric Information in Experimental Asset Markets," Working Papers 1102, Xiamen Unversity, The Wang Yanan Institute for Studies in Economics, Finance and Economics Experimental Laboratory, revised 14 Apr 2011.
    18. Andrea Morone & Eleni Samanidou, 2008. "A simple note on herd behaviour," Journal of Evolutionary Economics, Springer, vol. 18(5), pages 639-646, October.
      • Andrea Morone & Eleni Samanidou, 2007. "A simple note on Herd Behaviour," SERIES 0013, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2007.
    19. Simone Alfarano & Andrea Morone & Eva Camacho, 2011. "The role of public and private information in a laboratory financial market," Working Papers. Serie AD 2011-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    20. Zonna, Davide, 2016. "Sprechi di cibo e tentativi di riduzione. Un caso sperimentale
      [Avoiding food waste. A field experiment]
      ," MPRA Paper 76097, University Library of Munich, Germany.
    21. Fiore, Annamaria & Morone, Andrea, 2008. "A Simple Note on Informational Cascades," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-21.
    22. 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.
    23. Piergiuseppe Morone, 2004. "Investigating The Effects Of Information On Income Distribution Using Experimental Data," Experimental 0407005, EconWPA.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econom:v:71:y:2004:i:284:p:637-659. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.