The effect of exogenous information signal strength on herding

The effect of exogenous information signal strength on herding Purpose – In the controlled environment of a professional business seminar, the paper collects data on the willingness of participants to strategically default on a mortgage that is underwater by varying degrees. By providing the participants with fabricated exogenous strong and weak information signals, the paper is able to examine the effect of the signals on their responses. The purpose of this paper is to find evidence suggesting that gender, moral opposition, level of susceptibility to information, and information signal strength influence herding in business professionals. Design/methodology/approach – The paper adopts the Hirshleifer and Hong Teoh (2003) definition of herding as “any behavior similarity/dissimilarity brought about by the interaction of individuals.” In the controlled environment of a professional business seminar, the paper collects data on the willingness of participants to strategically default on a mortgage that is underwater by varying degrees. By providing the participants with fabricated exogenous strong and weak information signals, the paper is able to examine the effect of the signals on their responses. Findings – The major contribution is that the paper finds evidence suggesting that signal strength does indeed matter. The paper finds that a weak signal is more likely to produce herding when respondents answer questions relating their own decisions and strong signals produce more herding when respondents provide advice to others. The paper also finds that women are less likely to herd and people who report they are susceptible to information influences are more likely to herd. Not surprisingly, participants who are morally opposed to strategic default are less likely to herd in most scenarios. Originality/value – No other study of which the authors are aware looks specifically at signal strength in a financial setting or uses a sample of business professionals to examine herding of a financial nature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Behavioral Finance Emerald Publishing

The effect of exogenous information signal strength on herding

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1940-5979
DOI
10.1108/RBF-05-2012-0004
Publisher site
See Article on Publisher Site

Abstract

Purpose – In the controlled environment of a professional business seminar, the paper collects data on the willingness of participants to strategically default on a mortgage that is underwater by varying degrees. By providing the participants with fabricated exogenous strong and weak information signals, the paper is able to examine the effect of the signals on their responses. The purpose of this paper is to find evidence suggesting that gender, moral opposition, level of susceptibility to information, and information signal strength influence herding in business professionals. Design/methodology/approach – The paper adopts the Hirshleifer and Hong Teoh (2003) definition of herding as “any behavior similarity/dissimilarity brought about by the interaction of individuals.” In the controlled environment of a professional business seminar, the paper collects data on the willingness of participants to strategically default on a mortgage that is underwater by varying degrees. By providing the participants with fabricated exogenous strong and weak information signals, the paper is able to examine the effect of the signals on their responses. Findings – The major contribution is that the paper finds evidence suggesting that signal strength does indeed matter. The paper finds that a weak signal is more likely to produce herding when respondents answer questions relating their own decisions and strong signals produce more herding when respondents provide advice to others. The paper also finds that women are less likely to herd and people who report they are susceptible to information influences are more likely to herd. Not surprisingly, participants who are morally opposed to strategic default are less likely to herd in most scenarios. Originality/value – No other study of which the authors are aware looks specifically at signal strength in a financial setting or uses a sample of business professionals to examine herding of a financial nature.

Journal

Review of Behavioral FinanceEmerald Publishing

Published: Nov 22, 2013

Keywords: Herding; Information signal strength; Strategic mortgage default

References

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