How will they fare on Judgement Day? Reputational Herding in Professional Communities

Abstract

This paper presents a theoretical model of decision-making by professionals within the same field. The decision-makers consider reputation effects that result both from their relative actions and from the absolute outcomes. By combining the idea of relative actions from the managerial reputation herding models and that of outcomes from the information cascades models, one can make comparisons across a wide range of professions. The importance of outcomes, as a proxy for the relative importance of the two considerations, is a function of time. The model hopes to predict a herding equilibrium is more likely when ‘judgment day’ – the time when the outcome is reveled – is far into the future.