Firms reveal private information about the value of investment through their investment decisions. As a consequence they may have ex post regret once they see other firms ’ investments. We define a notion of rational expectations equilibrium for games which imposes a “no-regret ” property. In this equilibrium, all firms make the same investment decision, but despite the absence of ex post regret, the investment herd can be inefficient. In addition equilibrium might not exist. We introduce a notion of probabilistic existence, and identify conditions under which, if the number of firms is large, enough information comes out so that investment herds are firstbest efficient with high probability, and equilibrium exists with high probability.

an on-going program to study the economic impacts of ATP activities. The Principal Investigator on the project was David Burress, Associate Scientist and Research Economist at PRI, who also was lead author for this report. Additional economic analysis and drafting were provided by Joshua Rosenbloom, Professor of Economics, and Patricia Oslund, Research Economist at PRI. Additional assistance was received from the PRI Survey Research