Do markets drive out lemmings - or vice versa?

J D Hey, A Morone

Research output: Contribution to journalArticlepeer-review

Abstract

This paper investigates experimentally a market inspired by two strands of literature: on herd behaviour in non-market situations, and on the aggregation of private information in markets. The first strand suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the price mechanism may cause the private information to be aggregated correctly and efficiently. This latter therefore suggests that socially undesirable behaviour may be eliminated through the market. We test this experimentally, and find that socially undesirable behaviour may result: the market is misled by agents privately optimizing.

Original languageEnglish
Pages (from-to)637-659
Number of pages23
JournalEconomica
Volume71
Issue number284
Publication statusPublished - Nov 2004

Keywords

  • INFORMATION CASCADES

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