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Informational Herding and Optimal Experimentation

We explore the constrained efficient observational learning model - as when individuals care about successors, or are so induced by an informationlly-constrained social planner. We find that when the herding externality is correctly internalized in this fashion, incorrect herds still obtain. To describe behaviour in this model, we exhibit a set of indices that capture the privately extimated social value of every action.

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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 139.

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Length: 24 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:nuf:econwp:139
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  2. Aghion Philippe & Bolton, Patrick & Harris Christopher & Jullien Bruno, 1991. "Optimal learning by experimentation," CEPREMAP Working Papers (Couverture Orange) 9104, CEPREMAP.
  3. Vives, X., 1990. "How Fast Do Rational Agents Learn?," UFAE and IAE Working Papers 135-90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
  5. Aghion, Philippe, et al, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 621-54, July.
  6. Matthew Doyle, 2010. "Informational externalities, strategic delay, and optimal investment subsidies," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 941-966, August.
  7. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
  8. Amir, R., 1991. "Sensitivity analysis of multi-sector optimal economic dynamics," CORE Discussion Papers 1991006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  10. McLennan, Andrew, 1984. "Price dispersion and incomplete learning in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 7(3), pages 331-347, September.
  11. Dow, James, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 1-14, January.
  12. Sgroi, D., 2000. "Optimizing Information in the Herd: Guinea Pigs, Profit and Welfare," Economics Papers 2000-w14, Economics Group, Nuffield College, University of Oxford.
  13. Burdett, Kenneth, 1996. "Truncated means and variances," Economics Letters, Elsevier, vol. 52(3), pages 263-267, September.
  14. 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.
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