Informational Herding as Experimentation Deja Vu
MIT, Department of Economics, Working Paper No. 96-9
Posted: 2 Dec 1998
Date Written: March 1996
We prove that the recently proposed informational herding models are but special cases of a standard single person experimentation model with myopia. We then re-interpret the incorrect herding outcome as a familiar failure of complete learning in a optimal experimentation problem.
We next explore that experimentation model with patient individuals -- or equivalently, the observational learning model where individuals care about successors. As such, we find that even when individuals internalize the herding externality in this fashion, incorrect herds and incomplete learning still obtain. We note that this outcome can be implemented as aconstrained social optimum when decentralized.
JEL Classification: D83
Suggested Citation: Suggested Citation