Morone, Andrea (2008): Simple model of herd behaviour, a comment.
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Abstract
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 |
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Original Title: | Simple model of herd behaviour, a comment |
Language: | English |
Keywords: | Herd behaviour |
Subjects: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General |
Item ID: | 9586 |
Depositing User: | Andrea Morone |
Date Deposited: | 16 Jul 2008 00:31 |
Last Modified: | 29 Sep 2019 20:05 |
References: | Banerjee, A. (1992). A Simple Model of Herd Behaviour. Quarterly Journal of Economics, CVII:797-817. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/9586 |