An Economic Psychological Approach to Herd Behavior

Rook, Laurens

doi:10.1080/00213624.2006.11506883

Cited by 82 publications

(50 citation statements)

References 60 publications

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“…This relation could have been learned for various goods, like real estate or oil, and consumers could then transfer it to other products. A similar argument underlies the so-called bandwagon effect (Braun & Wicklund 1989;Corneo & Jeanne 1997b;Leibenstein 1950) and the theory of herding (Banerjee 1992;Huang & Chen 2006;Rook 2006). Following these arguments, consumers tend to neglect their own product knowledge and follow the (buying) behavior of other consumers.…”

Section: Scarcity Of Non-conspicuous Consumption Goodsmentioning

confidence: 87%

Are scarce products always more attractive? The interaction of different types of scarcity signals with products' suitability for conspicuous consumption

Gierl

Huettl

2010

International Journal of Research in Marketing

240

238

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Section: Scarcity Of Non-conspicuous Consumption Goodsmentioning

confidence: 87%

Are scarce products always more attractive? The interaction of different types of scarcity signals with products' suitability for conspicuous consumption

Gierl

Huettl

2010

International Journal of Research in Marketing

240

238

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“…Anderson and Holt (1997) present experimental evidence on these effects, while Daughety and Reinganum (1999) examine herding effects for judicial decisions. Rook (2006) provides a general review. 3 To the extent that there is learning, it is with respect to others' decisions and one's own preferences.…”

Section: Comparison With Related Literaturementioning

confidence: 99%

Risky Investment Decisions: How Are Individuals Influenced by Their Groups?

2011

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We investigate the effect of group versus individual decision-making in the context of risky investment decisions in which all subjects are fully informed of the probabilities and payoffs. Although there is full information, the lottery choices pose cognitive challenges so that people may not be sure of their expected utility-maximizing choice. Making such decisions in a group context provides real-time information in which group members can observe others' choices and revise their own decisions. Our experimental results show that simply observing what others in the group do has a significant impact on behavior. Coupling real-time information with group decisions based on the median value, i.e., majority rule, makes the median investment choice focal, leading people with low values to increase investments and those with high values to decrease investments. Group decisions based on the minimum investment amount produce more asymmetric effects.Key Words: real-time information, group decisions, experiments, herding JEL Classification: D03, D80, D70 1 Risky decisions typically do not involve isolated choices among abstract lotteries.Rather, there is often the opportunity to make an investment that affects the lottery structure.This additional element of choice increases the cognitive challenges posed by the risky decision, making it more difficult to ascertain the optimal choice. This article examines these individual decisions when made in a group context. Unlike existing treatments of herding effects, there is full information about probabilities and payoffs. The remaining uncertainty is with respect to individual preferences in the face of a complex task. Observing decisions by others in a group can potentially provide guidance with respect to the optimal choice. This article utilizes a series of experiments to explore this phenomenon.Decisions that involve risk and require up-front investments often are made in a group environment. Examples abound. Families make down payments and finance improvements on their residence; they decide how much to spend and where to send children for their education; they save for retirement. Non-profit and for-profit boards approve major employment contracts, undertake new capital projects, and acquire other organizations or companies. Potentially large numbers of people vote on regulating business activity and funding community development.And in the context of our experimental design, groups consider whether to engage in litigation, where the cost of litigation is paid before the outcome is known. In general, risky financial decisions are arguably more prevalent in group environments than when individuals make decisions in isolation.While the difference in decision-making behavior between groups and individuals has recently been the subject of much academic research, relatively little is known about group behavior in which there is an investment component to the risky decision. Individuals may act differently because of the separate and related effects of (1) being embedd...

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“…The results from the Stakeholders Survey may also be analyzed through the lens of herd behavior theory, developed in parallel in the social psychology and economics fields [16]. Under that perspective the stakeholders would demand more services from the Global Fund, and donors will provide more investments, as long others are doing the same; a critical mass may be reached through a “bandwagon effect” [17].…”

Section: Discussionmentioning

confidence: 99%

Stakeholders' opinions and expectations of the Global Fund and their potential economic implications

Galárraga

Bertozzi

2008

Aids

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Objective To analyze stakeholder opinions and expectations of the Global Fund to Fight AIDS, Tuberculosis, and Malaria, and to discuss their potential economic and financial implications. Design The Global Fund commissioned an independent study, the “360° Stakeholder Assessment,” to canvas feedback on the organization’s reputation and performance with an on-line survey of 909 respondents representing major stakeholders worldwide. We created a proxy for expectations based on categorical responses for specific Global Fund attributes’ importance to the stakeholders, and current perceived performance. Methods Using multivariate regression, we analyzed 23 unfulfilled expectations related to: resource mobilization; impact measurement; harmonization and inclusion; effectiveness of the Global Fund partner environment; and portfolio characteristics. The independent variables are personal- and regional-level characteristics that affect expectations. Results The largest unfulfilled expectations relate to: mobilization of private sector resources; efficiency in disbursing funds; and assurance that people affected by the three diseases are reached. Stakeholders involved with the Fund through the Country Coordinating Mechanisms, those working in multilateral organizations, and persons living with HIV are more likely to have unfulfilled expectations. In contrast, higher levels of involvement with the Fund correlate with fulfilled expectations. Stakeholders living in sub-Saharan Africa were less likely to have their expectations met. Conclusions Stakeholders unfulfilled expectations result largely from factors external to them, but also from factors over which they have influence. In particular, attributes related to partnership score poorly even though stakeholders have influence in that area. Joint efforts to address perceived performance gaps may improve future performance, and positively influence investment levels and economic viability.

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An Economic Psychological Approach to Herd Behavior

Cited by 82 publications

References 60 publications

Are scarce products always more attractive? The interaction of different types of scarcity signals with products' suitability for conspicuous consumption

Are scarce products always more attractive? The interaction of different types of scarcity signals with products' suitability for conspicuous consumption

Risky Investment Decisions: How Are Individuals Influenced by Their Groups?

Stakeholders' opinions and expectations of the Global Fund and their potential economic implications

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