Herd behavior, the "penguin effect," and the suppression of informational diffusion: An analysis of informational externalities and payoff interdependency

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Abstract

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.

Original languageEnglish
Pages (from-to)407-425
Number of pages19
JournalRAND Journal of Economics
Volume28
Issue number3
DOIs
Publication statusPublished - 1997 Jan 1

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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