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Herding with and without Payoff Externalities - An Internet Experiment

  • Mathias Drehmann

    (Bank of England)

  • Jörg Oechssler

    ()

    (University of Heidelberg, Department of Economics)

  • Andreas Roider

    ()

    (University of Bonn, Department of Economics and Stanford University)

Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experi- mentally investigate the effects of several different forms of payoff externalities (e.g., network effects, first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation e¤ects (i.e., the influence of success models) in the context of herding.

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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0420.

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Length: 35 pages
Date of creation: Apr 2005
Date of revision: Apr 2005
Handle: RePEc:awi:wpaper:0420
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