The Right Choice at the Right Time: A Herding Experiment in Endogenous Time
This paper examines experimental evidence relating to herd behaviour in situations when subjects can learn from each other, and can delay their decision. Subjects acted rationally, gaining from observational learning, despite penalties for delay. Cascades were ubiquitous and reverse-cascades occurred in which incorrect decisions made by early decision-makers produced herds on the incorrect choice. The major departure from rationality cam when subjects realized they had chosen incorrectly despite following the majority view. This led many to add extra delay to future decision-making. It is argued that this may be due to certain cognitive biases, and is likely to make matters worse, making it all the more important that policy-makers attempt to minimize the change of reverse-cascades.
|Date of creation:||01 Mar 2000|
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