Herding with Costly Observation
نویسندگان
چکیده
We characterize optimal strategies in a simple herding model where observations have a small cost. We assume that there are two states and two possible signals that each agent may get. The prior distribution is biased towards adopting behavior. That is, ex-ante, adopting gives a higher expected utility than not adopting. Contrary to Kultti & Miettinen (2005) herding does not arise deterministically in this model when the cost of observation is small.
منابع مشابه
Herding with Costly Observation∗ PRELIMINARY AND INCOMPLETE DRAFT COMMENTS WELCOME
We characterize optimal strategies in a simple herding model where observations have a small cost. We assume that there are two states and two possible signals that each agent may get. The prior distribution is biased towards adopting behavior. That is ex-ante adopting gives a higher expected utility than not adopting. Contrary to Kultti & Miettinen (2005) herding does not arise deterministical...
متن کاملStrategic behavior in acquiring and revealing costly private information
Article history: Received 13 December 2013 Received in revised form 26 February 2015 Accepted 2 March 2015 Available online 21 April 2015 When an agent has the opportunity to access public information, whether or not to acquire costly private information is a strategic decision. In this case, to study the informativeness of the revealed information, it is essential to consider the processes of ...
متن کاملAn Equilibrium Analysis of Information Aggregation in Investment Markets with Discrete Decisions
This paper proposes a bridge between the Herding literature and the literature on Rational Expectations under asymmetric information. In particular we examine how the presence of discrete investment decisions affects the properties of a market equilibrium where information is costly to acquire. We choose to focus on the case where individual decisions are discrete since this appears to be the k...
متن کاملImpact of Herding on Buy & Hold, Momentum & Contrarian Strategy in Tehran Stock Exchange
This paper aims to study the effect of herding on buy and hold, momentum and contrarian strategy. In this research, the cross-sectional absolute deviation is used to identify herding behavior in twenty industries in Tehran stock market. It is observed that the down and boom periods had more industries with herding. Moreover, the weak herding is more common than the strong herding in this market...
متن کاملHerding and Price Convergence in a Laboratory Financial Market
We study whether herding can arise in a laboratory financial market in which agents trade sequentially. Agents trade an asset whose value is unknown and whose price is efficiently set by a market maker. We show that the presence of a price mechanism destroys the possibility of herding. Most agents follow their private information and prices converge to the fundamental value. This result contras...
متن کامل