Mimetic Herding Behavior and the Decision to Strategically Default
Posted: 15 Nov 2014
Date Written: November 13, 2014
This study examines the herding behavior of individuals in the context of their willingness to strategically default on a mortgage based on the (falsely) observed behavior of those around them. We find that homeowners are easily persuaded to follow the herd and adopt a strategic default proclivity consistent with that of their peers. Herding behavior is stronger when a Maven, or thought leader, is involved and weaker when the person finds strategic default to be morally objectionable. Homeowners appear to herd more for informational gains rather than for social reasons, and do not herd differentially based on signal strength. In a robustness check using a sample of real estate professionals, the strong mimetic herding result continues to hold.
Keywords: Mimetic herding; Strategic mortgage default; Maven; Signal strength
JEL Classification: C83, C93, D19, G01, G02, R20
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