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.

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Herding with Costly Observation
1Department of Economics, University of Helsinki, klaus.kultti@helsinki.fi
2Bank of Finland and Department of Economics, University of Helsinki, paavo.miettinen@bof.fi
Citation Information: The B.E. Journal of Theoretical Economics. Volume 7, Issue 1, Pages –, ISSN (Online) 1935-1704, DOI: 10.2202/1935-1704.1320, July 2007
Publication History:
- Published Online:
- 2007-07-31
Keywords: herding; information acquisition


















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