Herding with Costly Observation
A BEJTE Topics article.
Abstract
We characterize optimal strategies in a simple herding model where observations have a small cost. We assume that there are two states and two possible signals that each agent may get. The prior distribution is biased towards adopting behavior. That is, ex-ante, adopting gives a higher expected utility than not adopting. Contrary to Kultti & Miettinen (2005) herding does not arise deterministically in this model when the cost of observation is small.Submitted: June 1, 2006 · Accepted: March 20, 2007 · Published: July 31, 2007
Recommended Citation
Kultti, Klaus K. and Miettinen, Paavo A. (2007)
"Herding with Costly Observation,"
The B.E. Journal of Theoretical Economics:
Vol. 7
: Iss. 1
(Topics), Article 28.
Available at: http://www.bepress.com/bejte/vol7/iss1/art28
