Selfish herding

Nicholas Gruen writes:

[Y]ou’d think that economics would have a good theory of herding, or at least that it would be a prominent subject within the discipline. Alas, if you thought that, you’d be mistaken. When Oswald looked at the biology of herding, the canonical article was Hamilton, W. D. (1971). “Geometry for the Selfish Herd”. Journal of Theoretical Biology 31 (2): 295–311.

This theory models herding as a ‘rational’ strategy to avoid predators. The ‘game’ that gets selected for is for each animal to try to avoid being on the outside of the herd so that the predator gets to eat the outsider. It’s a powerful theory which fits (ie ‘predicts’ a lot of of biological data). …

You know how many times it’s been cited in the economics literature? Well it’s never been cited – at least when Oswald looked it up – it probably has now. …

By contrast, the prominent theory of herding in economics is herding as informational learning. Thus for instance people imitate others figuring ‘they must know something I don’t’. In a cinema, someone yells “Fire!”. People start running for the exit. Others up the back don’t hear what the yeller yelled, but they figure they could do worse than follow the herd. The idea is illustrated at the end of this famous scene. This idea can help explain financial bubbles.

But the biological herding idea seems so much more powerful. Because it suggests that a dominant biological mode is one in which each ‘agent’ seeks the local optimum of their own survival, and that this gives the group some holistic coherence, but that no-one is thinking of the group, and the group’s survival and welfare – the global optimum – is therefore the (arbitrary) result of these individual optimisations. The biological theory of herding spells danger for the herd in many situations.

I had come across Hamilton’s paper before, but this post prompted me to read it properly. It is worth it. Add it to the list of biological examples where the “invisible hand” can lead to an emergent phenomena that is costly to the group.

Audio and slides for Andrew Oswald’s speech, which triggered Gruen’s post, can be found here.

8 comments

  1. So how might the biological herding idea apply to, say, financial bubbles? By analogy to “avoid being on the outside of the herd”, is  the relevant motivation for an individual to avoid being the last person to buy before the bubble pops and the “predators” (e.g., short-sellers) move in to take advantage of the crash?

    1. Frank, the way I thought of herding in financial markets is that the predators – the people you need to worry about – are those to whom you report monthly or quarterly. I’m thinking of within the institutional market. No-one ever got fired for a falling unit price if the market falls by the same amount.  

  2. Frank, the way I thought of herding in financial markets is that the predators – the people you need to worry about – are those to whom you report monthly or quarterly. I’m thinking of within the institutional market. No-one ever got fired for a falling unit price if the market falls by the same amount.  

  3. Is ‘herding’ always a prisoners dilemma? I don’t have a biology background so my example could be completely of but I seem to remember from watching docos certain animals e.g elephants form herds allowing them to provide greater protection than if they were to head of by themselves. Analogous to say formation of supply convoys in the Atlantic during WWII.

    1. I don’t know if they are always PD, but the specific example I posted was. Elephants may have a way to overcome the PD, not sure. But the PD itself is, assuming we’re under attack, we’re all better off running in opposite directions, but it’s in the individuals’ self interest to stay in the herd.

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