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Safety in numbers: A model of managerial herd behavior
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In this paper, a formalization of managerial herd behavior based on the principle of safety in numbers is presented. But their approach is completely independent of the information signalling approach to herd behavior and fully captures popular explanations of the phenomenon.Abstract:
This paper provides a formalization of managerial herd behavior that is based on the principle of safety in numbers. The explanation is completely independent of the information signalling approach to herd behavior (Scharfstein and Stein, 1990, Banerjee, 1992), and fully captures popular explanations of the phenomenon. The key assumptions are that managers are individually risk averse, and that their remuneration be partly based on relative performance.read more
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Why Do Firms Imitate Each Other
TL;DR: In this article, the authors organize the theories of business imitation into two broad categories: (1) information-based theories where firms follow others that are perceived as having superior information, and (2) rivalry-based theory, where firms imitate others to maintain competitive parity or limit rivalry.
Journal ArticleDOI
Reframing executive compensation: An assessment and outlook
TL;DR: In this article, a new framework for under standing and interpreting the breadth of executive compensation research and theory is developed and applied, which sorts the literature along three dimensions that reflect three basic issues in compensation design: how to pay, when to pay and what to pay (form of pay consequence).
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Do investors herd in emerging stock markets?: Evidence from the Taiwanese market
TL;DR: In this paper, the authors extended investor herding studies to an emerging yet relatively sophisticated Taiwanese stock market at the sector level by using firm level data and employed different methodologies designed to test the existence of investor herds to better understand the sources of herd behavior.
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The Follower's Dilemma: Innovation and Imitation in the Professional Services Industry
TL;DR: In this paper, the authors present a dilemma: Imitate a new, unproven offering, or forgo imitation and perhaps miss out on the "next big thing" in the market.
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Psychology, Financial Decision Making, and Financial Crises
TL;DR: It is essential that scientific knowledge of people´s cognitive and other limitations is brought to bear on the issue of how to prevent such extreme circumstances to occur, and individual irrationality in stock markets would be eliminated.
References
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Journal ArticleDOI
A Simple Model of Herd Behavior
TL;DR: In this article, the authors analyze a sequential decision model in which each decision maker looks at the decisions made by previous decision makers in taking her own decision, and they show that the decision rules that are chosen by optimizing individuals will be characterized by herd behavior.
Posted Content
Herd Behavior and Investment
TL;DR: In this paper, the authors examine some of the forces that can lead to herd behavior in investment and discuss applications of the model to corporate investment, the stock market, and decision making within firms.
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Multimarket Oligopoly: Strategic Substitutes and Complements
TL;DR: A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market as mentioned in this paper, and whether the action provides costs or benefits in the second market depends on whether it increases or decreases marginal costs.
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Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand
TL;DR: In this article, the nature of the problem is discussed and the bandwagon effect and the snob effect are discussed. And the Veblen effect and mixed effects are discussed as well as the conclusion of the conclusion.