Abstract: Naive Herding

In a social-learning environment, we investigate implications of the assumption that players naively believe that a previous player’s actions reflect solely that player’s private information. This error leads players to inadvertently over-weight early players’ private signals by neglecting that interim players’ actions also embed these signals. Consequently, naive players can become extremely and wrongly confident about the state even where rational players never become confident and may herd on incorrect actions even where rational players never do. Wrong herding can happen hen naive players observe no more than two previous actions and also when other players are rational or under-infer.