Date of Award

6-2011

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Eshragh Motahar

Language

English

Keywords

herd behavior, information

Abstract

One focus of economics in the recent years has been the integration of human behavior, including that of herd behavior, into economic thought. Herd behavior can be defined as the way that individuals, who have private information, end up acting together as a group inadvertently, without planned action. It is thought to be caused by incomplete information and subsequently information cascades. Does this behavior exist, and if it does, did it have any effect on the recent housing market? The last twelve years provide a good opportunity to test whether or not herd behavior exists in the housing market, and if it had any effect on the housing bubble. While controlling for other factors, time series regressions were run from the period of 1990 to 2009 in order to find evidence of herding in this market. Anecdotal evidence and regression results indicate that herd behavior does exist, that it does have effects on the housing market, and that it did help cause the recent housing bubble. Considering the high price of homeownership, herd behavior likely has effects on other markets, not just the market for homes. Policy actions should be taken in order to reduce the occurrence of this type of behavior in the future, to further limit the volatility of all markets, including housing and to help prevent future economic crises.

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