Does the Consensus Prevail? Experimental Evidence
23 Pages Posted: 8 Nov 2011
Date Written: November 7, 2011
Abstract
We test hypotheses on herd behavior in a simple investment decision through an experimental setting. Subjects were given some fundamental information about a specific firm and asked for a recommendation, buy or sell. This personal judgment was then confronted to the opposed consensus of analysts, in order to determine if subjects revise their recommendations. In this binary choice setting, we show that herding takes place, and is inversely correlated to perceived individual ability. Moreover, when reputation is at stake, conformist subjects are even more prone to follow the consensus in their decision making.
Keywords: Herding Behavior, Decision Making, Behavioral Finance, Reputation
JEL Classification: D01, D8, G11
Suggested Citation: Suggested Citation
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