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Controlling the Herd: Applications of Herding Theory

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  • D. Sgroi

Abstract

The literature on informational cascades and herding theory has for a decade focused on the externality and suboptimal outcomes generated from decision-making when spaces are coarser than private information spaces. Much of the output has therefore been positive, not normative. This paper redresses this imbalance by detailing several direct applications for marketing and business arising from herding theory. We see that business practices such as encouraging early sales, or selling to groups rather than individual customers, can be justified theoretically by direct application of herding theory.

Suggested Citation

  • D. Sgroi, 2001. "Controlling the Herd: Applications of Herding Theory," Cambridge Working Papers in Economics 0106, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0106
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    References listed on IDEAS

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    1. Margaret A. Meyer, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 15-41.
    2. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
    3. 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.
    4. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-1066, October.
    5. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
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    Cited by:

    1. Sgroi, D., 2002. "Modelling Experience as Signal Accumulation," Cambridge Working Papers in Economics 0205, Faculty of Economics, University of Cambridge.
    2. 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.

    More about this item

    Keywords

    informational cascade; herding; marketing strategies;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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