Herding Because of Bayesian Learning/Informational Cascades or Social Pressure? An Experimental Study
Keywords:Herding Behavior, BAYESIAN LEARNING, SOCIAL PRESSURE
Purpose: Herding behavior remains a debatable topic in behavioral finance. In past many researchers studied different aspects of Herding behavior and suggested it to be as an important factor in financial decision-making. The purpose of this study is to analyze whether herding exists or not? If yes, is it a rational or irrational process? And how do different personality’s traits have an impact on the decision makers’ choice of herding?
Design and Methodology: An online program was designed on MATLAB to experience the real time herding behavior of both male and female subjects. An experimental design was administered to 30 respondents in a lab setting; out of 30 respondents 21 were males, and 9 were females having different educational & professional backgrounds. Data on personality traits was gathered through Eysenck’s Impulsivity, Venturesomeness, and Empathy (IVE) questionnaire.
Findings: Result indicated that herding exists and herding behavior can be a result of the both rational and irrational thinking process. Some of the personality traits have an impact on herding behavior, while others did not show any impact on herding behavior
Implications: The findings provided useful insight for policymakers and investors.
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