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

  • Sgroi, Daniel

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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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 39 (2002)
Issue (Month): 1 (April)
Pages: 137-166

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Handle: RePEc:eee:gamebe:v:39:y:2002:i:1:p:137-166
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Jackson, Matthew O. & Kalai, Ehud, 1997. "Social Learning in Recurring Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 102-134, October.
  2. 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.
  3. 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.
  4. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
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