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Rational Herding in Financial Economics (1996)
| Citations: | 78 - 0 self |
BibTeX
@MISC{Devenow96rationalherding,
author = {Andrea Devenow and Ivo Welch},
title = {Rational Herding in Financial Economics},
year = {1996}
}
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Abstract
This paper briefly describes recent papers on the economics of rational herding in financial markets. Some models can predict perfect herding, in which rational agents all act alike without any countervailing force. Such herding typically arises either from direct payoff externalities (negative externalities in bank runs; positive externalities in the generation of trading liquidity or in information acquisition), principal-agent problems (based on managerial desire to protect or signal reputation), or informational learning (cascades). The paper also provides a few pointers to related literature and suggests issues to be addressed in future research.
Keyphrases
rational herding financial economics negative externality principal-agent problem perfect herding trading liquidity information acquisition informational learning signal reputation related literature bank run future research rational agent managerial desire positive externality direct payoff externality financial market paper briefly describes recent paper
