American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Herd Design
American Economic Review: Insights
vol. 5,
no. 4, December 2023
(pp. 460–76)
Abstract
The classic herding model examines the asymptotic behavior of agents who observe their predecessors' actions as well as a private signal from an exogenous information structure. In this paper, we introduce a self-interested sender into the model and study her problem of designing this information structure. If agents cannot observe each other, the model reduces to Bayesian persuasion. However, when agents observe predecessors' actions, they may learn from them, potentially harming the sender. We identify necessary and sufficient conditions under which the sender can nevertheless obtain the same utility as when the agents are unable to observe each other.Citation
Arieli, Itai, Ronen Gradwohl, and Rann Smorodinsky. 2023. "Herd Design." American Economic Review: Insights, 5 (4): 460–76. DOI: 10.1257/aeri.20220412Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making