Informational Herding and Optimal Experientation

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Informational Herding and Optimal Experientation

Author Info

Smith, L.
Sorensen, P.

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Abstract

We explore the constrainned efficient observational learning model - as when individuals care about successors, or are so induced by an informationally- constrained social planner. We find that when the herding externality is correctly internali zed in this fashion, incorrect herds still obtain.

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Publisher Info
Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 97-22.

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Length: 22 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:mit:worpap:97-22

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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Other versions of this item:

Paper
- Lones Smith & Peter Norman Sørensen, 2005. "Informational Herding and Optimal Experimentation," Discussion Papers 05-13, University of Copenhagen. Department of Economics. [Downloadable!]
- Lones Smith & Peter Norman Sorensen, 2006. "Informational Herding and Optimal Experimentation," Cowles Foundation Discussion Papers 1552, Cowles Foundation, Yale University. [Downloadable!]
- Smith, L. & Sorensen, P., 1997. "Informational Herding and Optimal Experimentation," Economics Papers 139, Economics Group, Nuffield College, University of Oxford.

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April. [Downloadable!] (restricted)
Other versions:
- Sgroi, D., 2000. "Optimizing Information in the Herd: Guinea Pigs, Profit and Welfare," Economics Papers 2000-w14, Economics Group, Nuffield College, University of Oxford.
Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September. [Downloadable!] (restricted)
Other versions:
- Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October. [Downloadable!] (restricted)
Burdett, Kenneth, 1996. "Truncated means and variances," Economics Letters, Elsevier, vol. 52(3), pages 263-267, September. [Downloadable!] (restricted)
Doyle, Matthew, 2002. "Informational Externalities, Strategic Delay, and the Search for Optimal Policy," Staff General Research Papers 10046, Iowa State University, Department of Economics. [Downloadable!]
Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October. [Downloadable!] (restricted)
Aghion Philippe & Bolton, Patrick & Harris Christopher & Jullien Bruno, 1991. "Optimal learning by experimentation," CEPREMAP Working Papers (Couverture Orange) 9104, CEPREMAP.
Other versions:
- Aghion, P. & Bolton, P. & Harris, C. & Jullien, B., 1990. "Optimal Learning By Experimentation," DELTA Working Papers 90-10, DELTA (Ecole normale supérieure).
Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
Other versions:
- Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Working papers 96-19, Massachusetts Institute of Technology (MIT), Department of Economics.
- Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Economics Papers 115, Economics Group, Nuffield College, University of Oxford.
McLennan, Andrew, 1984. "Price dispersion and incomplete learning in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 7(3), pages 331-347, September. [Downloadable!] (restricted)
Vives, Xavier, 1993. "How Fast Do Rational Agents Learn?," Review of Economic Studies, Blackwell Publishing, vol. 60(2), pages 329-47, April. [Downloadable!] (restricted)
Other versions:
- Vives, X., 1990. "How Fast Do Rational Agents Learn?," UFAE and IAE Working Papers 135-90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
Dow, James, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Blackwell Publishing, vol. 58(1), pages 1-14, January. [Downloadable!] (restricted)
Amir, Rabah, 1996. "Sensitivity analysis of multisector optimal economic dynamics," Journal of Mathematical Economics, Elsevier, vol. 25(1), pages 123-141. [Downloadable!] (restricted)
Other versions:
- Amir, R., 1991. "Sensitivity analysis of multi-sector optimal economic dynamics," CORE Discussion Papers 1991006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
Aghion, Philippe, et al, 1991. "Optimal Learning by Experimentation," Review of Economic Studies, Blackwell Publishing, vol. 58(4), pages 621-54, July. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Christos Koulovatianos & Leonard J. Mirman & Marc Santugini, 2006. "Investment in a Monopoly with Bayesian Learning," Vienna Economics Papers 0603, University of Vienna, Department of Economics. [Downloadable!]
Jacob K. Goeree & Thomas R. Palfrey & Brian W. Rogers & Richard D. McKelvey, 2006. "Self-Correcting Information Cascades," Levine's Bibliography 321307000000000211, UCLA Department of Economics. [Downloadable!]
Other versions:
- Goeree, Jacob & Palfrey, Thomas & Rogers, Brian & McKelvey, Richard, 2004. "Self-correcting Information Cascades," Working Papers 1197, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
- Jacob Goeree & Thomas Palfrey & Brian Rogers, 2004. "Self-Correcting Information Cascades," Levine's Bibliography 122247000000000153, UCLA Department of Economics. [Downloadable!]
- JACOB K. GOEREE & THOMAS R. PALFREY & BRIAN W. ROGERS & RICHARD D. Mc KELVEY, 2007. "Self-Correcting Information Cascades," Review of Economic Studies, Blackwell Publishing, vol. 74(3), pages 733-762, 07. [Downloadable!] (restricted)
Doyle, Matthew, 2002. "Informational Externalities, Strategic Delay, and the Search for Optimal Policy," Staff General Research Papers 10046, Iowa State University, Department of Economics. [Downloadable!]
Alessandro Lizzeri & Marciano Siniscalchi, 2006. "Parental Guidance and Supervised Learning," Discussion Papers 1432, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Other versions:
- Alessandro Lizzeri & Marciano Siniscalchi, 2007. "Parental Guidance and Supervised Learning," NajEcon Working Paper Reviews 843644000000000090, www.najecon.org. [Downloadable!]
- Alessandro Lizzeri & Marciano Siniscalchi, 2006. "Parental Guidance and Supervised Learning," Levine's Bibliography 321307000000000395, UCLA Department of Economics. [Downloadable!]
- Alessandro Lizzeri & Marciano Siniscalchi, 2008. "Parental Guidance and Supervised Learning," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 1161-1195, August. [Downloadable!] (restricted)

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