Mimetic Herding Behavior and the Decision to Strategically Default

Posted: 15 Nov 2014

See all articles by Michael Seiler

Michael Seiler

College of William and Mary - Finance

Mark Lane

Old Dominion University; Hawaii Pacific University - College of Business

David Harrison

Texas Tech University

Multiple version iconThere are 2 versions of this paper

Date Written: November 13, 2014

Abstract

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

Suggested Citation

Seiler, Michael and Lane, Mark and Harrison, David, Mimetic Herding Behavior and the Decision to Strategically Default (November 13, 2014). Journal of Real Estate Finance and Economics, Vol. 49, No. 4, 2014. Available at SSRN: https://ssrn.com/abstract=2523928

Michael Seiler

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

Mark Lane (Contact Author)

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

HOME PAGE: http://bpa.odu.edu/

Hawaii Pacific University - College of Business ( email )

Honolulu, HI 96813
United States

HOME PAGE: http://www.hpu.edu

David Harrison

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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