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Bad advice, herding and bubbles

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  • Mark Thoma

Abstract

Prior to the crash of the housing market, many experts told the public that the upward trend in housing prices was not a bubble, it could be explained by fundamentals. This paper shows that an increase in the propensity of individuals to herd toward trend-chasing behavior caused, for example, by bad advice from experts, increases the likelihood that a destructive bubble will occur.

Suggested Citation

  • Mark Thoma, 2013. "Bad advice, herding and bubbles," Journal of Economic Methodology, Taylor & Francis Journals, vol. 20(1), pages 45-55.
    • Handle: RePEc:taf:jecmet:v:20:y:2013:i:1:p:45-55
    DOI: 10.1080/1350178X.2013.774850
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    References listed on IDEAS

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    1. Volker Wieland & Maik Wolters, 2011. "The diversity of forecasts from macroeconomic models of the US economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(2), pages 247-292, June.
    2. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    3. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    4. Anufriev, M. & Hommes, C.H., 2007. "Evolution of Market Heuristics," CeNDEF Working Papers 07-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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    Cited by:

    1. Prachi Jain & Debasish Maitra, 2025. "Commodity Price Crash Risk and Crash Risk Contagion," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(4), pages 343-378, April.

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