《《Scharfstein and Stein - 1990 - Herd Behavior and Investment》.pdf

American Economic Association Herd Behavior and Investment Author(s): David S. Scharfstein and Jeremy C. Stein Reviewed work(s): Source: The American Economic Review, Vol. 80, No. 3 (Jun., 1990), pp. 465-479 Published by: American Economic Association Stable URL: /stable/2006678 . Accessed: 24/01/2013 16:03 Your use of the JSTOR archive indicates your acceptance of the Terms Conditions of Use, available at . /page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@. . American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The American Economic Review. This content downloaded on Thu, 24 Jan 2013 16:03:03 PM All use subject to JSTOR Terms and Conditions Herd Behavior and Investment By DAVID S. SCHARFSTEINAND JEREMYC. STEIN* This paper examines some of the forces that can lead to herd behavior in investment. Undercertain circumstances,managers simply mimic the investment decisions of other managers, ignoring substantiveprivate information.Although this behavior is inefficientfrom a social standpoint, it can be rational from the perspective of managers who are concernedabout their reputationsin the labor market. We discuss applicationsof the model to corporateinvestment, the stock market, and decision making withinfirms. (JEL 026, 522) A basic tenet of classical economic theory average opinion.