Social interaction, herd behaviour and the formation of agent expectations
Survey data on agent expectations appear to experience inertia, remaining relatively stable for protracted periods punctuated with the occasional structural shift initiated by exogenous changes. The data is also characterised with an underlying level of volatility which varies over time. This paper examines if social interaction and herd behaviour, based on the social learning literature, can explain the characteristics of this dynamic process. The social learning takes place in a network with small world characteristics. Moving from an ordered to a small world network dramatically increases the level of volatility and it quickly reaches a higher state (at which point increasing the randomness of the network has little effect). Assuming that all social networks have small world characteristics then there is an inherent level of volatility in expectations formation. Increasing the influence of experts, by increasing the number of connections from these agents, also increases volatility. This may explain the variability in volatility over time. Finally, it is found that under certain network structures, where the number of connections between agents is increased, herd behaviour leads to information cascades potentially leading to the formation of speculative bubbles
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
When requesting a correction, please mention this item's handle: RePEc:sce:scecfa:178. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.