investment and coordination in oligopolistic industries we examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share the data indicate that investment reduces the probability that rival firms will expand capacity but the effect is temporary large firms tend to maintain market share while smaller firms tend to invest simultaneously with rivals the role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals preemption does not allow a persistent increase in market share but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity

fragmentation and stability of markets trading skills are highly rewarded in practice but largely ignored in theoretical models of financial markets this paper demonstrates the importance of skills by examining their interaction with market fragmentation and market stability we consider a computational model where traders abilities to accurately price assets are endogenous in contrast to models that do not consider skills we find that centralising markets can lead to higher price volatility and less resilience to shocks because it increases the equilibrium proportion of unskilled traders

bidding conventions and the degree of overpricing in the market for houses how do buyers decide whether a property is overpriced do they base their judgement on the simple difference between the asking price and expected selling price or do they take into account local bidding conventions the typical asking selling price spread in the neighbourhood this paper explores the implications of bidding conventions for the definition and measurement of the degree of overpricing and the effect this has on a survival model of time on the market the paper also considers the impact of uncertainty and employs fractional polynomial regression to explore whether spatio temporal variations in attribute prices affect market perceptions of overpricing

herding with and without payoff externalities an internet experiment most real world situations that are susceptible to herding are also characterized by direct payoff externalities yet the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities in this paper we experimentally investigate the effects of several different forms of payoff externalities e g network effects first mover advantage etc in a standard information based herding model our results are based on an internet experiment with more than 6000 subjects of which more than 2400 participated in the treatments reported here including a subsample of 267 consultants from an international consulting firm we also replicate and review earlier cascade experiments finally we study reputation effects i e the influence of success models in the context of herding

retrospectives friedrich hayek and the market algorithm friedrich a hayek 1899 1992 is known for his vision of the market economy as an information processing system characterized by spontaneous order the emergence of coherence through the independent actions of large numbers of individuals each with limited and local knowledge coordinated by prices that arise from decentralized processes of competition hayek is also known for his advocacy of a broad range of free market policies and indeed considered the substantially unregulated market system to be superior to competing alternatives precisely because it made the best use of dispersed knowledge our purpose in writing this paper is twofold first we believe that hayek s economic vision and critique of equilibrium theory not only remain relevant but apply with greater force as information has become ever more central to economic activity and the complexity of the information aggregation process has become increasingly apparent second we wish to call into question hayek s belief that his advocacy of free market policies follows as a matter of logic from his economic vision the very usefulness of prices and other economic variables as informative messages which is the centerpiece of hayek s economics creates incentives to extract information from signals in ways that can be destabilizing markets can promote prosperity but can also generate crises we will argue accordingly that a hayekian understanding of the economy as an information processing system does not support the type of policy positions that he favored thus we find considerable lasting value in hayek s economic analysis while nonetheless questioning the connection of this analysis to his political philosophy

market watch information and availability cascades among the media and investors in the u s ipo market in this study we advance current research on social influence in markets by examining how the recency and availability of information about others actions within and between different communities influence their allocation of attention and their evaluations specifically we examine how the media and investors allocate attention to and evaluate newly public firms in the days following their initial public offerings ipos our findings have implications for understanding the fieldwide processes through which the value of new firms is established in markets

public goods in networks this paper considers incentives to provide goods that are non excludable along social or geographic links we find first that networks can lead to specialization in public good provision in every social network there is an equilibrium where some individuals contribute and others free ride in many networks this extreme is the only outcome second specialization can benefit society as a whole this outcome arises when contributors are linked collectively to many agents finally a new link increases access to public goods but reduces individual incentives to contribute hence overall welfare can be higher when there are holes in a network

twin picks disentangling the determinants of risk taking in household portfolios this paper investigates risk taking in the liquid portfolios held by a large panel of swedish twins we document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth leading to different risk sensitivities across investors human capital which we estimate directly from individual labor income also affects risk taking positively while internal habit and expenditure commitments tend to reduce it our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences furthermore heterogeneous risk sensitivities across investors help reconcile individual preferences with representative agent models

herd behavior the penguin effect and the suppression of informational diffusion an analysis of informational externalities and payoff interdependency this article analyzes a technology adoption process in which the effect of informational spillover interacts with network externalities the interplay of informational externalities and payoff interdependency induces risk averse and clustering behavior in the technology adoption process the analysis differs from the herd behavior literature in focusing on how the herd behavior of subsequent users influences the initial adoption decision moreover herd behavior in this article stems from each agent s desire to inhibit the revelation of new information that can be used in a way detrimental to her rather than from each agent s effort to free ride on information contained in the decisions made by predecessors

decision making with naive advice in many of the decisions we make we rely on the advice of others who have preceded us for example before we buy a car choose a dentist choose a spouse find a school for our children sign on to a retirement plan etc we usually ask the advice of others who have experience with such decisions the same is true when we make major financial decisions here people easily take advice from their fellow workers or relatives as to how to choose stock balance a portfolio or save for their child s education although some advice we get is from experts most of the time we make our decisions relying only on the rather uninformed word of mouth advice we get from our friends or neighbors we call this aive advice in this paper i will outline a set of experimental results that indicate that word of mouth advice is a very powerful force in shaping the decisions that people make and tends to push those decisions in the direction of the predictions of the rational theory

status quo maintenance reconsidered changing or incomplete preferences after reviewing the evidence for status quo maintenance sqm i consider how to reconcile sqm with traditional consumer theory behavioural economists usually let agents preferences change as a function of their endowments treating the same person with different endowments as a set of distinct agents many properties of preferences then become immune to empirical test and it becomes impossible to judge whether an agent s decisions make the agent better or worse off this impedes prediction of when decision rules are likely to change sqm can alternatively be explained with unchanging preferences if preferences are incomplete sqm is then consistent with self interest and there is no reason why it should not persist

help wanted economists crime and public policy beginning with gary w becker s 1968 article on crime and punishment economists have contributed important theoretical insights and empirical findings to the study of criminal behavior but the influence of economists on crime relevant research and over policy debates remains negligible this essay summarizes some basic data on the causes of crime the social costs and benefits of incarceration and replenishing social capital work on crime by economists should become influential in setting research agendas and shaping policy debates but economists will have to roll up their sleeves complexify their models and confront a real world prisoner s dilemma or two

the dynamics of multimarket competition in exploration and exploitation activities prior studies of multimarket contact have investigated exploitation rather than exploration activities we contrast effects of multimarket contact on entry and exit dynamics in these two settin

consumption externalities and diffusion in pharmaceutical markets antiulcer drugs we examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs externalities emerge when use of a drug by others affects its value and or conveys information about efficacy and safety to patients and physicians this can affect the rate of market diffusion for a new entrant and can lead to dominance of one drug despite the availability of close substitutes we use data for h2 antagonist antiulcer drugs to estimate a dynamic demand model and quantify these effects the model has three components an hedonic price equation that measures how the aggregate usage of a drug as well as conventional attributes affect brand valuation equations relating equilibrium market shares to quality adjusted prices and marketing levels and diffusion equations describing the dynamic adjustment process we find that consumption externalities influence both valuations and rates of diffusion and that they operate at the brand and not the therapeutic class level

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

instituicoes questionando a divisao micro macro da economia e de seu ensino this article questions the division of economics into micro and macroeconomics although part of the discussion of institutions may fit in microeconomics and another part in macroeconomics such discussion is not reduced to these areas and deserves a separate place both in research and in teaching this place includes the instutional context and the institutional character of the economic as well as the reproduction and transformation of institutions by individuals the study of institutions contributes to a better understanding of micro and macroeconomic issues in addition to helping identify the institutional requisites of economic theories and therefore their adequate scope of application

spatial and temporal flows of china s forest resources development of a framework for evaluating resource efficiency abstract population growth and resource scarcity have remained major constraints on china s development for several decades under conditions of resource limitations utilization efficiency is a key concern for chinese scientists and decision makers based on forest production and trade data for china we present a conceptual framework for resource flow analysis calculate the quantities and analyze the characteristics of flows of forest resources primarily wood and wood byproducts during the critical early economic development of china from 1953 to 2000 by converting the forest resource flows into log equivalents i e the quantity of logs required to generate a unit of each type of product the consumption of forest resources has accelerated throughout the study period and the structure and efficiency of forest resource utilization have both improved the proportion of forest resource flows obtained from outside china has increased and most of this wood was consumed by wood processing industries over time consumption has shifted from logs and lumber to the pulp and paper and artificial board industries to improve the economics and sustainability of its use of forest resources china should increase consumption of forest resources by its pulp and paper industry more fully utilize forest resources obtained from outside china and weaken the dependence on these foreign forest resources by promoting increased utilization efficiency and structural readjustment of the forest industry therefore improved forest management is an effective mean of weakening the dependence on foreign forest resources

leaning right and learning from the left diffusion of corporate tax policy across borders there is an increased focus in comparative politics and international relations on how choices of governments are dependent on choices made by other governments the authors argue that although the relationship between policy choices across countries is often labeled as either diffusion or competition in many cases the theoretical mechanisms underpinning these labels are unclear in this article the authors build a model of social learning with a specific application to the diffusion of corporate tax reductions the model yields predictions that are differentiable from existing models of tax competition specifically the authors argue that social learning is most likely in the wake of tax policy cuts by left governments they test the model using an existing data set of corporate tax rate changes and an author created data set of changes in tax legislation covering 20 organisation for economic co operation and development countries the authors empirical findings show that social learning is an important determinant of corporate tax policy making

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

the genetics of investment biases abstract for a long list of investment biases including lack of diversification excessive trading and the disposition effect we find that genetic differences explain up to 45 of the remaining variation across individual investors after controlling for observable individual characteristics the evidence is consistent with a view that investment biases are manifestations of innate and evolutionary ancient features of human behavior we find that work experience with finance reduces genetic predispositions to investment biases finally we find that even genetically identical investors who grew up in the same family environment often differ substantially in their investment behaviors due to individual specific experiences or events

corruption as a self fulfilling prophecy evidence from a survey experiment in costa rica an influential body of scholarship argues that corruption behaves as a selffulfilling prophecy the idea of this work is that levels of corruption emerge endogenously as a result of a society wide coordination game in which ther individual returns to corrupt behavior are a function of how disposed towards corruption the other members of society are perceived as being an empirical implication of this logic is that if one were to exogenously perturb beliefs about societal levels of corruption upward willingness to engage in corruption should increase as a consequence the current paper evaluates this claim by utilizing an information experiment embedded in a large scale household survey conducted in the gran area metropolitana gam of costa rica from october 2013 to april 2014 n 4200 changes in beliefs about corruption were induced via the random assignment of an informational display depicting the increasing percentage of costa ricans who have experienced or directly observed an act of corruption from 2006 to 2011 the paper finds that on average assignment to this display relative to the control condition increased the probability that a respondent would be willing to pay a bribe to a police officer by approximately 0 04 to 0 08 thereby providing supporting evidence for the self fulfilling prophecy hypothesis

sequential parimutuel games abstract in a parimutuel betting system a successful player s return depends on the number of other players who choose the same action this paper examines a general solution for two action sequential parimutuel games and shows how the unique equilibrium of such games leads to a simple pattern of behavior in particular we show that there is an advantage to being an early mover that early players might choose actions with an ex ante low probability of success and that player action choices can flip with small changes in the parameters of the game

information externalities and intermediaries in frictional search markets in frictional matching markets with heterogeneous buyers and sellers sellers incur discrete showing costs to show goods to buyers who incur discrete inspection costs to assess the suitability of the goods on offer we study how brokers can help reduce these costs by managing the level and mix of goods in their inventory intermediaries emerge and improve social welfare when there is sufficient heterogeneity in the types of goods and preferences learning and inventory management enable search intermediaries to internalize information externalities generated in unintermediated private search resume externalites informationnelles et intermediaires dans des marches frictionnels de recherche dans des marches frictionnels d arrimage ou acheteurs et vendeurs sont heterogenes les vendeurs doivent encourir des couts separes pour montrer leurs produits aux acheteurs qui doivent pour leur part encourir des couts separes d inspection pour s assurer que les biens offerts leur conviennent on etudie comment des courtiers peuvent aider a reduire ces couts en gerant le niveau et la mixite des biens dans leurs inventaires des intermediaires emergent qui ameliorent le bien etre social quand il y a heterogeneite suffisante des types de biens et de preferences l apprentissage et la gestion des inventaires permettent aux intermediaires de recherche d internaliser les externalites informationnelles engendrees dans le processus de recherche privee sans l aide d intermediaires

the consequences of endogenizing information for the performance of a sequential decision procedure we analyse the implications of endogenizing information collection and reputational concerns for the performance of a sequential decision structure in this model two agents decide in a sequence whether to implement a public project the cost of gathering information is private we derive two results first endogenizing information replaces the herding problem with a free rider problem second endogenizing information aggravates the distortionary effect of reputational concerns

complexity and economic policy a paradigm shift or a change in perspective a review essay on david colander and roland kupers s complexity and the art of public policy in their recent book colander and kupers 2014 argue that viewing the economy as a complex adaptive system should change the way in which we make economic policy this would necessitate a paradigm shift economics has over time tried to produce a coherent model to underpin the dominant laissez faire liberal approach but we have never proved in that model that left to their own devices the participants in an economy will self organize into a satisfactory state this is an assumption complex interactive systems with direct interaction between heterogeneous agents may show no tendency to self equilibrate and will undergo endogenous crises economists should concentrate on the emergence of certain patterns colander and kupers suggest that we may be able to nudge the system into good basins of attraction a more radical view is that there are no fixed basins of attraction these change with the evolution of the system and it is illusory to believe that we can choose good basins we may be able to recognize and influence the emergence of certain states of the economy but we are far from leon walras s dream of economics as a science like astrophysics

learning from the behavior of others conformity fads and informational cascades learning by observing the past decisions of others can help explain some otherwise puzzling phenomena about human behavior for example why do people tend to converge on similar behavior why is mass behavior prone to error and fads the authors argue that the theory of observational learning and particularly of informational cascades has much to offer economics business strategy political science and the study of criminal behavior

optimal contracting with moral hazard and cascading in this article i identify optimal incentive contracts for managers of firms competing in the product market such firms often confront similar decisions and uncertainties managers can improve decision quality by generating private signals through costly effort however since signals are likely to be correlated firms that decide later get additional information from the actions of earlier firms this impacts effort choice decision quality is also affected if later managers disregard their own signals and blindly imitate preceding decisions in a competitive environment such cascading hurts profits contracts that solve both moral hazard and cascading problems typically put more weight on firm profits making them expensive contacts with more weight on decision quality are less expensive but result in cascades shareholders choose contracts that maximize their net surplus this results in testable implications about which industries may have more convergence in investment choices greater pay for profit sensitivity larger differences in observed contracts more innovation larger size firms and potential for overcompensation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

does culture influence asset managers views and behavior abstract this research enters new ground by presenting comparative survey evidence on asset managers views and behavior in the united states germany japan and thailand relying on hofstede s four cultural dimensions we find that cultural differences are most helpful in understanding country differences which cannot be explained by pure economic reasoning in short controlling for various determinants the dimension of more individualism predicts less herding behavior more power distance leads to older and comparatively less experienced managers in the upper hierarchy masculinity brings men into top positions and to higher volumes of assets under personal responsibility and uncertainty avoidance is related to higher safety margins against the tracking error allowed and relatively more research effort these consequences i e the culturally different importance of herding age experience gender tracking error and research effort clearly affect investment behavior although in a complex way

social learning and peer effects in consumption evidence from movie sales using box office data for all movies released between 1982 and 2000 i quantify how much the consumption decisions of individuals depend on information they receive from their peers when quality is ex ante uncertain in the presence of social learning we should see different box office sales dynamics depending on whether opening weekend demand is higher or lower than expected i use a unique feature of the movie industry to identify ex ante demand expectations the number of screens dedicated to a movie in its opening weekend reflects the sales expectations held by profit maximizing theatre owners several pieces of evidence are consistent with social learning first sales of movies with positive surprise and negative surprise in opening weekend demand diverge over time if a movie has better than expected appeal and therefore experiences larger than expected sales in week 1 consumers in week 2 update upward their expectations of quality further increasing week 2 sales second this divergence is small for movies for which consumers have strong priors and large for movies for which consumers have weak priors third the effect of a surprise is stronger for audiences with large social networks finally consumers do not respond to surprises in first week sales that are orthogonal to movie quality like weather shocks overall social learning appears to be an important determinant of sales in the movie industry accounting for 32 of sales for the typical movie with positive surprise this implies the existence of a large social multiplier such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand

how beliefs influence the willingness to contribute to prevention expenditure we study how beliefs affect individuals willingness to contribute to prevention expenditure through a two type n person public good game and test several results empirically we show analytically that pessimistic agents will invest more in prevention expenditure than optimists we also demonstrate how small differences in beliefs may induce substantial differences in type related prevention expenditure the more atomistic agents are the less they will contribute to the public good pessimistic beliefs then lead to a double deprivation and we discuss potential issues and remedies the more optimistic a society is the lower will be its total green expenditure we then use a large international survey to study how beliefs and additional controls determine prevention expenditure we rely on several proxies for beliefs and the willingness to contribute to prevention expenditure which we combine through principal component analysis in addition we investigate the role of environmental education for the relationship between beliefs and the willingness to contribute because of potential endogeneity bias due to unobserved variables that are likely to affect both beliefs and the willingness to contribute we follow the theoretical analysis and resort to a recursive bivariate model our main findings are very much in line with the theoretical predictions we find across all specifications that more optimistic beliefs lead to a lower willingness to contribute environmental education affects the willingness to contribute only indirectly through its impact on beliefs

the sound of silence observational learning in the u s kidney market mere observation of others choices can be informative about product quality this paper develops an individual level dynamic model of observational learning and applies it to a novel data set from the u s kidney market where transplant candidates on a waiting list sequentially decide whether to accept a kidney offer we find strong evidence of observational learning patients draw negative quality inferences from earlier refusals in the queue thus becoming more inclined towards refusal themselves this self reinforcing chain of inferences leads to poor kidney utilization despite the continual shortage in kidney supply counterfactual policy simulations show that patients would have made more efficient use of kidneys had the concerns behind earlier refusals been shared this study yields a set of marketing implications in particular we show that observational learning and information sharing shape consumer choices in markedly different ways optimal marketing strategies should take into account how consumers learn from others

interdependences in the intrafirm diffusion of technological innovations confronting the rational and social accounts of diffusion this article investigates the intrafirm diffusion of technological innovations and the interdependences that exist among rival firms in this process previous research has offered two potential explanations for these interdependences social accounts in which they result from institutional pressures and rational accounts in which firms are interdependent as a result of how adoption by rivals affects expectations about the profitability of the technology the article offers two contributions first we propose a competitive interaction mechanism that is consistent with the fundamentals of rational accounts of diffusion second the empirical analysis shows the dominance of the proposed rational mechanism over social accounts of innovation diffusion in the generation of interdependences in the process of intrafirm diffusion

information cascades in the laboratory when a series of individuals with private information announce public predictions initial conformity can create an information cascade in which later predictions match the early announcements this paper reports an experiment in which private signals are draws from an unobserved urn subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws if initial decisions coincide then it is rational for subsequent decisionmakers to follow the established pattern regardless of their private information rational cascades formed in most periods in which such an imbalance occurred copyright 1997 by american economic association

social interactions and asset pricing bubbles abstract we investigate the influence of social interactions on asset markets and provide an empirical test of the hypothesis that social interactions increase asset pricing bubbles we test the impact of social interactions on bubbles in a bubble prone experimental asset pricing market over a total of 21 markets we compare asset pricing bubbles in a design that allows for social interactions with a standard laboratory setting markets that allow for face to face communication between participants in a lab in the field setting show significantly larger asset pricing bubbles relative to standard laboratory markets face to face communication increases bubbles to a larger extend than a popular social media feature the like

social learning in networks of friends versus strangers networks and the embedded relationships are critical determinants of how people communicate and form beliefs the explosion of social media has significantly increased the scope and impact of social learning among consumers this paper studies observational learning in networks of friends versus strangers a consumer decides whether to adopt a product after receiving a private signal about product quality and observing the actions of others the preference for the product has greater heterogeneity in the stranger network than in the friend network we show that when the network is small observing friends actions helps the consumer make more accurate inferences about quality as the network grows however the stranger network becomes more effective underlying these results are two competing effects of network heterogeneity on social learning these are the individual preference effect which allows one to make a better quality judgment when the preference element of past actions is more certain and the social conforming effect wherein private signals are underused in quality judgment as people follow others actions we find cascading is more likely to occur in the friend network than in the stranger network for a high quality firm the stranger network generates greater sales than the friend network when the network size is sufficiently large or the private signal is sufficiently accurate we also examine the existence of experts and firms using advertising to influence consumers finally we show how networks that are highly homogeneous or heterogeneous could impede observational learning

taking the road less traveled by does conversation eradicate pernicious cascades abstract we offer a model in which sequences of individuals often converge upon poor decisions and are prone to fads despite communication of the payoff outcomes from past choices this reflects both direct and indirect action based information externalities in contrast with previous cascades literature cascades here are spontaneously dislodged and in general have a probability less than one of lasting forever furthermore the ability of individuals to communicate can reduce average decision accuracy and welfare

duration dependence and labor market conditions evidence from a field experiment this article studies the role of employer behavior in generating negative duration dependence the adverse effect of a longer unemployment spell by sending fictitious resumes to real job postings in 100 u s cities our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker s unemployment spell with the majority of this decline occurring during the first eight months we explore how this effect varies with local labor market conditions and find that duration de pendence is stronger when the local labor market is tighter this result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets jel code j64

the role of information and social interactions in retirement plan decisions evidence from a randomized experiment this paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees decisions to enroll in a tax deferred account tda retirement plan within a large university the experiment encouraged a random sample of employees in a subset of departments to attend a benee ts information fair organized by the university by promising a monetary reward for attendance the experiment multiplied by more than e ve the attendance rate of these treated individuals relative to controls and tripled that of untreated individuals within departments where some individuals were treated tda enrollment e ve and eleven months after the fair was signie cantly higher in departments where some individuals were treated than in departments where nobody was treated however the effect on tda enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did we provide three interpretations differential treatment effects social network effects and motivational reward effects to account for these results

can conformity overcome the yuck factor explaining the choice for recycled drinking water abstract of the 17 sdgs the united nations has recently revealed that countries are not on track to receive the water and sanitation goals by the deadline as climatic events decrease the reliability of traditional drinking sources especially in cities recycled drinking water rdw is becoming an increasingly important policy option yet the implementation of rdw remains mired in difficulties with the psychological yuck factor as a key obstacle studies of successful cases of rdw implementation show that trust information and social norms are important however no studies of rdw have directly compared the relative importance of information to the power of social norms this paper explores the role of conformity as a social norm in increasing public acceptance of recycled water for drinking using a simple choice experiment we find that conformity per se appears to provide sufficient reason for behavioural change relating to recycled water rather than information or economic incentives this study is one of the first to present empirical evidence from a choice experiment on rdw and has practical implications on the use of conformity as motivation to taking difficult decisions

bayesian learning in social networks we study the perfect bayesian equilibrium of a sequential learning model over a general social network each individual receives a signal about the underlying state of the world observes the past actions of a stochastically generated neighbourhood of individuals and chooses one of two possible actions the stochastic process generating the neighbourhoods defines the network topology we characterize pure strategy equilibria for arbitrary stochastic and deterministic social networks and characterize the conditions under which there will be asymptotic learning convergence in probability to the right action as the social network becomes large we show that when private beliefs are unbounded meaning that the implied likelihood ratios are unbounded there will be asymptotic learning as long as there is some minimal amount of expansion in observations we also characterize conditions under which there will be asymptotic learning when private beliefs are bounded

keynesian beauty contest accounting disclosure and market efficiency this paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a keynesian beauty contest an influential metaphor originally proposed by keynes 1936 and recently formalized by allen morris and shin 2006 in such markets public information plays an additional commonality role biasing stock prices away from the consensus fundamental value toward public information despite this bias i demonstrate that provisions of public information always drive stock prices closer to the fundamental value hence as a main source of public information accounting disclosure enhances market efficiency and transparency should not be compromised on grounds of the keynesian beauty contest effect

nature or nurture what determines investor behavior abstract using data on identical and fraternal twins complete financial portfolios we decompose the cross sectional variation in investor behavior we find that a genetic factor explains about one third of the variance in stock market participation and asset allocation family environment has an effect on the behavior of young individuals but this effect is not long lasting and disappears as an individual gains experience frequent contact among twins results in similar investment behavior beyond a genetic factor twins who grew up in different environments still display similar investment behavior our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs we attribute the genetic component of asset allocation the relative amount invested in equities and the portfolio volatility to genetic variation in risk preferences

the structure of competition how competition between one s rivals influences imitative market entry this paper investigates how the pattern of encounters between a firm s competitors affects the firm s inclination to follow its competitors into a new market we theorize that direct encounters between a firm s rivals lead to a herding effect making imitative market entry more likely past mutual forbearance between a firm s competitors resulting from asymmetric multimarket competition further strengthens this herding effect by enhancing the firm s expectations of market attractiveness in contrast aggressive past rivalry between the competitors resulting from symmetric multimarket contact dampens these expectations producing a competition effect that makes herding less probable we test our idea in two distinct contexts the chinese pharmaceutical industry and the taiwanese computer hardware industry and find consistent support in both settings we discuss how our analysis of what we call the structure of competition can be extended to research on other forms of firm behavior

monopoly pricing in the presence of social learning a monopolist offers a product to a market of consumers with heterogeneous quality preferences although initially uninformed about the product quality they learn by observing past purchase decisions and reviews of other consumers our goal is to analyze the social learning mechanism and its effect on the seller s pricing decision consumers follow an intuitive non bayesian decision rule under conditions that we identify we show that consumers eventually learn the product s quality we show how the learning trajectory can be approximated in settings with high demand intensity via a mean field approximation that highlights the dynamics of this learning process its dependence on the price and the market heterogeneity with respect to quality preferences two pricing policies are studied a static price and one with a single price change finally numerical experiments suggest that pricing policies that account for social learning may increase revenues considerably relative to policies that do not this

networks in economic development this chapter surveys the implications of some studies in network economics research for economic development we focus on information flow and risk sharing two topics where work in theory empirics and policy analysis have been especially intensive and complementary in analysing information we distinguish models of information diffusion and aggregation highlight how different models imply very different guidance regarding the right way to seed information in discussing risk sharing we look at the key frictions that impede efficient informal insurance and some potential unintended consequences when policymakers intervene to help throughout we stress practical insights that can be used with limited measurement of the details of networks

business as usual market crashes and wisdom after the fact the authors present a three stage model of market dynamics in the first stage routine behavior tends to keep information of common interest trapped in private hands in the second stage private information reaches a threshold that triggers some agents to alter their behavior these actions release information to the market the final stage involves the market s response to this news as other participants react to the initial departure from routine behavior the authors present an application to industry investment they also outline applications to the international debt crisis to bank runs and to political upheavals copyright 1994 by american economic association

distinguishing the effect of overconfidence from rational best response on information aggregation this article studies the causal effect of individuals overconfidence and bounded rationality on information aggregation by using a new multiperiod game in which agents are rewarded for submitting accurate estimates of an unknown asset s value based on i their private information and ii others past estimates by carrying out laboratory sessions of this game in which subjects overconfidence is a treatment variable i find that overconfidence affects the information aggregation process by increasing the dispersion of estimates and decreasing the rate of estimates convergence however even when subjects are not overconfident qualitatively similar deviations from the fully rational model predictions are observed i show that this can be explained by subjects strategic response to errors the author 2008 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

herding among security analysts the paper shows that the buy or sell recommendations of security analysts have a signi cant positive in uence on the recommendations of the next two analysts this in uence can be traced to short lived information in the most recent revisions in contrast the in uence of the prevailing consensus is not stronger if the consensus accurately forecasts subsequent stock price movements this indicates consensus herding consistent with models in which analysts herd based on little information the consensus also has a stronger in uence when market conditions are favorable the resulting poorer information aggregation could cause bull markets to be intrinsically more fragilea e g bikhchandani et al j political economy 100 5 1992 992 1026 2000 elsevier science s a all rights reserved jel classixcation g11 g14 g24

asymmetric information information externalities and efficiency the case of oil exploration in this article we examine the efect of private information and information externalities on the ex post eficiency of investment in oil exploration we show that too much drilling tends to occur ifjirms believe that the area is likely to contain a sizeable pool of oil and too little drilling occurs if the opposite is true bargaining with well defined property rights to the information externality can eliminate underinvestment but overinvestment remains a problem because firms have an incentive not to disclose their private information

strategic delay and the onset of investment cascades i study the phenomenon of herd behavior in a framework where agents can endogenously choose both the actions and the timing of their actions i assume that agents may have privately known quality and content of information a unique symmetric equilibrium in pure strategies is proved to exist and characterized in its closed form an investment cascade always occurs in the equilibrium and a strategic delay is shown to exist before the sudden onset of the investment cascade i also examine the loss of welfare from delay and information cascade

information revelation and strategic delay in a model of investment we model investment as an n player game with a pure informational externality each player s payoff depends only on his own action and the state of nature however because a player s action reveals his private information players wait to see what other players will do equilibrium is inefficient because delay is costly and information is imperfectly revealed we characterize the unique symmetric perfect bayesian equilibrium and study the robustness of delay which turns out to be sensitive to the reaction speed and the number of players we establish the following results i when the period length is very short the game ends very quickly and there is a form of herding or informational cascade which results in a collapse of investment ii as the period length increases the possibility of herding disappears iii as the number of players increases the rate of investment and the information flow are eventually independent of the number of players adding more players simply increases the number who delay iv in the limit the time profile of investment is extreme a period of low investment followed either by an investment surge or a collapse

sequential sales learning and cascades when ipo shares are sold sequentially later potential investors can learn from the purchasing decisions of earlier investors this can lead rapidly to cascades in which subsequent investors optimally ignore their private information and imitate earlier investors although rationing in this situation gives rise to a winner s curse it is irrelevant the model predicts that 1 offerings succeed or fail rapidly 2 demand can be so elastic that even risk neutral issuers underprice to completely avoid failure 3 issuers with good inside information can price their shares so high that they sometimes fail 4 an underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market consider a scenario in which an issuer is selling a new security of uncertain value for example an ipo initial public offering of stock or high yield debt through an underwriter the s e c has banned variable price sales while the value of this new security is highly uncertain to individual market participants investors hold perfectly accurate information when aggregated moreover there are many potential investors and a small number of these investors can jointly determine the value of the firm or its project with high precision it would seem that in this scenario underpriced offerings would succeed and overpriced offerings would fail nevertheless this paper shows that if the distribution channels of invest ment banks are limited underpriced offerings can fail and overpriced offer ings can succeed with limited distribution channels it takes the under writer time to approach interested investors therefore later investors can observe how well an offering has sold to date or at least how successful it has sold relative to offerings previously undertaken by this underwriter

growing growing gone cascades diffusion and turning points in the product life cycle research on the product life cycle plc has focused primarily on the role of diffusion this study takes a broader theoretical perspective on the plc by incorporating informational cascades and developing and testing many new hypotheses based on this theory on average across 30 product categories the authors find that i new consumer durables have a typical pattern of rapid growth of 45 per year over 8 years ii this period of growth is followed by a slowdown when sales decline by 15 and stay below those of the previous peak for 5 years iii slowdown occurs at 34 population penetration and about 50 of ultimate market penetration iv products with large sales increases at takeoff tend to have larger sales declines at slowdown v leisure enhancing products tend to have higher growth rates and shorter growth stages than nonleisure enhancing products time saving products tend to have lower growth rates and longer growth stages than nontime saving products vi lower probability of slowdown is associated with steeper price reductions lower penetration and higher economic growth vii a hazard model can provide reasonable predictions of the slowdown as early as the takeoff the authors discuss the implications of these findings

decomposing uncertainty and its effects on imitation in firm exit decisions this study examines the effects of different uncertainty types on interorganizational imitation in firm exit decisions we draw on herding models to conceptualize exit decisions as being based on a firm s private information which the firm updates with information inferred from observing the actions of others we posit that different types of uncertainty differentially affect this observational learning process in particular we propose that certain uncertainty types attenuate rather than foster observational learning and subsequent imitation we test this theory using a 29 year panel data set on the exit of private venture capital firms our results indicate that observational learning does influence imitation in firm exit decisions and they also suggest that a common belief that uncertainty enhances imitation does not apply to all types of uncertainty specifically we find that uncertainty fosters imitation only when it is idiosyncratic to the firm uncertainties that are common to all firms in contrast actually reduce reliance on observational learning by decomposing uncertainty into different types and explicating their effects on imitation we demonstrate that this relationship is more nuanced than previously assumed and in addition highlight the role of deliberate information processing in imitation

corruption across countries and regions some consequences of local osmosis abstract large and persistent differences in corruption across comparable countries is a challenging research issue even more intriguing are such differences across regions within the same country because the typically considered socioeconomic and governance characteristics are generally more similar across such regions than across different countries this paper s principal theme is that individuals perceptions of their environments are influenced by the realities that they have faced in the past these perceptions affect their current and future actions which in turn influence the current and future realities an articulation and analysis of these dynamics yields significant observations concerning individuals behavior and societal outcomes