Morone, Andrea (2008): Simple model of herd behaviour, a comment.
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In his ‘Simple model of herd behaviour’, Banerjee (1992) shows that – in a sequential game – if the first two players have chosen the same action, all subsequent players will ignore their own information and start a herd, an irreversible one. The points of strength of Banerjee’s model are its simplicity and the robustness of its results. Its weakness is that it is based on three tie-breaking assumptions, which according to Banerjee minimise herding probabilities. In this paper we analyse the role played by the tie-breaking assumptions in reaching the equilibrium. Even if the overall probability of herding does not change dramatically, the results obtained, which differ from Banerjee's are the following: players' strategies are parameter dependent; an incorrect herd could be reversed; a correct herd is irreversible. There are, in addition, some several cases where available information allows players to find out which action is correct, and so an irreversible correct herd starts.
|Item Type:||MPRA Paper|
|Original Title:||Simple model of herd behaviour, a comment|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General|
|Depositing User:||Andrea Morone|
|Date Deposited:||16. Jul 2008 00:31|
|Last Modified:||13. Feb 2013 16:42|
Banerjee, A. (1992). A Simple Model of Herd Behaviour. Quarterly Journal of Economics, CVII:797-817.