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Optimizing Information in the Herd: Guinea Pigs, Profit and Welfare

  • Sgroi, D.

Herding arises when an agent's private informationis swamped by public information in what Jackson and Kalai (1997) call a recurring game. The agent will fail to reveal his own information and will follow the actions of his predecessor and, as a result, useful information is lost, which might have highlighted a better choice for later decision-makers. This paper evaluates the strategy of forcing a sub-set of agents to make their decision early from the perspective of a social planner, and a firm with a valuable or valueless procuct. Promotional activity by firms can be explained as an attemps to overcome the herd externality and maximize sales.

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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2000-w14.

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Length: 24 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:nuf:econwp:2000-w14
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Matthew Jackson & Ehud Kalai, 1995. "Social Learning in Recurring Games," Discussion Papers 1138, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. 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.
  3. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  4. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
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