Conversation, Information, and Herd Behavior
Experimental evidence shows that an important reason why people tend to imitate others, to exhibit “herd behavior” is that they assume that the others have information that justiﬁes their actions. The information cascade models of Banerjee  and Bikhchandani et al .  are signiﬁcant developments in showing some general equilibrium and welfare eﬀects of such rational imitative behavior. But these models as speciﬁed may be of limited applicability since they assert that diﬀerences across groups in herd behavior can be attributed to the random decisions of ﬁrst movers. Diﬀerences across groups in herd behavior might be explained more often in terms of diﬀerent modes of interpersonal information transmission. Patterns of human conversation imply great selectivity to the kinds of information transmitted within groups.
Shiller, Robert J., "Conversation, Information, and Herd Behavior" (1995). Cowles Foundation Discussion Papers. 1335.