In a Herd? Herding with costly observation and an unknown number of predecessors
We consider a sequential decision to adopt/not adopt a technology in a herding environment with costly observation. The novelty compared to the previous models on herding with costly observation, such as Kultti and Miettinen (2006a), is that the agents do not know how many other agents have been in the same situation earlier. It turns out that herding no longer arises deterministically. We show that when observation costs are low there exists a unique symmetric pure strategy equilibrium where all agents observe the actions of two immediate predecessors in order to find out whether they are in a herd or not.
Volume (Year): 21 (2008)
Issue (Month): 2 (Autumn)
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- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
- Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, November.
- Klaus Kultti & Paavo Miettinen, 2006. "Herding With Costly Information," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 21-31.
- Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, November.
- 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.
- 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.
- Kultti Klaus K & Miettinen Paavo A, 2007. "Herding with Costly Observation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-16, July.
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