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Article: Informational Herding, Optimal Experimentation, and Contrarianism

TitleInformational Herding, Optimal Experimentation, and Contrarianism
Authors
Issue Date2021
PublisherOxford University Press. The Journal's web site is located at http://www.oxfordjournals.org/our_journals/restud/
Citation
The Review of Economic Studies, 2021, v. 88 n. 5, p. 2527-2554 How to Cite?
AbstractIn the standard herding model, privately informed individuals sequentially see prior actions and then act. An identical action herd eventually starts and public beliefs tend to “cascade sets” where social learning stops. What behaviour is socially efficient when actions ignore informational externalities? We characterize the outcome that maximizes the discounted sum of utilities. Our four key findings are: (a) Cascade sets shrink but do not vanish, and herding should occur but less readily as greater weight is attached to posterity. (b) An optimal mechanism rewards individuals mimicked by their successor. (c) Cascades cannot start after period one under a signal logconcavity condition. (d) Given this condition, efficient behaviour is contrarian, leaning against the myopically more popular actions in every period. We make two technical contributions: As value functions with learning are not smooth, we use monotone comparative statics under uncertainty to deduce optimal dynamic behaviour.We also adapt dynamic pivot mechanisms to Bayesian learning.
Persistent Identifierhttp://hdl.handle.net/10722/297616
ISSN
2023 Impact Factor: 5.9
2023 SCImago Journal Rankings: 13.609
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorSmith, L-
dc.contributor.authorSørensen, PN-
dc.contributor.authorTian, J-
dc.date.accessioned2021-03-23T04:19:28Z-
dc.date.available2021-03-23T04:19:28Z-
dc.date.issued2021-
dc.identifier.citationThe Review of Economic Studies, 2021, v. 88 n. 5, p. 2527-2554-
dc.identifier.issn0034-6527-
dc.identifier.urihttp://hdl.handle.net/10722/297616-
dc.description.abstractIn the standard herding model, privately informed individuals sequentially see prior actions and then act. An identical action herd eventually starts and public beliefs tend to “cascade sets” where social learning stops. What behaviour is socially efficient when actions ignore informational externalities? We characterize the outcome that maximizes the discounted sum of utilities. Our four key findings are: (a) Cascade sets shrink but do not vanish, and herding should occur but less readily as greater weight is attached to posterity. (b) An optimal mechanism rewards individuals mimicked by their successor. (c) Cascades cannot start after period one under a signal logconcavity condition. (d) Given this condition, efficient behaviour is contrarian, leaning against the myopically more popular actions in every period. We make two technical contributions: As value functions with learning are not smooth, we use monotone comparative statics under uncertainty to deduce optimal dynamic behaviour.We also adapt dynamic pivot mechanisms to Bayesian learning.-
dc.languageeng-
dc.publisherOxford University Press. The Journal's web site is located at http://www.oxfordjournals.org/our_journals/restud/-
dc.relation.ispartofThe Review of Economic Studies-
dc.titleInformational Herding, Optimal Experimentation, and Contrarianism-
dc.typeArticle-
dc.identifier.emailTian, J: jt2016@hku.hk-
dc.identifier.authorityTian, J=rp02155-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1093/restud/rdab001-
dc.identifier.scopuseid_2-s2.0-85118156165-
dc.identifier.hkuros321739-
dc.identifier.isiWOS:000710586800013-
dc.publisher.placeUnited Kingdom-

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