Herding by attribution of privileged information

We study a situation where agents take extreme actions and how these actions are imitated by others. First, Experiment 1 showed that an expert first mover had an advantage in obtaining herding by others on his investment decision, when compared to a non‐expert first mover. Experiment 2 showed that this advantage only appeared when the first mover's investment was out‐of‐the‐ordinary (in fact, highly aberrant). We obtained the same level of herding in Experiment 3 when the first mover had privileged information, instead of being an expert. Second, Experiment 4 showed that when people observed the same out‐of‐the‐ordinary investment and did not know whether the first mover had privileged information or not, they herded on him as if he had privileged information. In fact, our data revealed that participants thought that the unknown first mover had privileged information. Furthermore, herding was statistically indistinguishable from the condition where observers knew unambiguously that the first mover had privileged information. Copyright © 2008 John Wiley & Sons, Ltd.