A continuum of homogeneous rational agents choose between two competing technologies. Agents observe a private signal and sample others’ previous choices. Signals have an aggregate component of uncertainty, so aggregate behavior does not necessarily reflect the true state of nature. Nonetheless, agents still find others’ choices informative, and base their decisions partly on others’ behavior. Consequently, bad choices can be perpetuated: aggregate uncertainty makes agents herd on the inferior technology with positive probability. I derive the optimal decision rule when agents sample exactly two individuals. I also present examples with herds on the inferior technology for arbitrarily large sample sizes
Aggregate Uncertainty Can Lead to Incorrect Herds
Monzon I
2017-01-01
Abstract
A continuum of homogeneous rational agents choose between two competing technologies. Agents observe a private signal and sample others’ previous choices. Signals have an aggregate component of uncertainty, so aggregate behavior does not necessarily reflect the true state of nature. Nonetheless, agents still find others’ choices informative, and base their decisions partly on others’ behavior. Consequently, bad choices can be perpetuated: aggregate uncertainty makes agents herd on the inferior technology with positive probability. I derive the optimal decision rule when agents sample exactly two individuals. I also present examples with herds on the inferior technology for arbitrarily large sample sizes
| File | Dimensione | Formato | |
|---|---|---|---|
|
Monzon, Aggregate Uncertainty Can Lead to Incorrect Herds, AEJ Micro 2017.pdf
Accesso riservato
Dimensione
568.95 kB
Formato
Adobe PDF
|
568.95 kB | Adobe PDF | Visualizza/Apri Richiedi una copia |
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
