Banerjee's paper presents a simple model of herd behavior, analyzing how individuals make decisions based on the choices of others, even when they have their own information. The model shows that rational individuals may end up following others' decisions, leading to inefficient outcomes. The key idea is that when people observe others' choices, they may ignore their own information, reducing the overall informativeness of the decision process. This creates a "herd externality," where the actions of one individual negatively affect the decisions of others. The model considers a population of individuals who must choose between options, with one correct option and others that are less favorable. Each person has a signal about the correct option, which may or may not be accurate. The decision process is sequential, with each person observing the choices of those before them. The paper shows that in equilibrium, individuals may follow the crowd rather than using their own information, leading to inefficient outcomes. The paper also discusses the welfare implications of herd behavior, showing that it can lead to suboptimal decisions even when individuals have accurate information. The model highlights the importance of information and the potential for inefficiency when individuals rely on others' choices rather than their own. The results suggest that in some cases, it may be better to restrict individuals from using others' information to improve overall welfare. The paper concludes that herd behavior is a significant phenomenon in economics and social decision-making, and that understanding its causes and consequences is crucial for analyzing real-world situations.Banerjee's paper presents a simple model of herd behavior, analyzing how individuals make decisions based on the choices of others, even when they have their own information. The model shows that rational individuals may end up following others' decisions, leading to inefficient outcomes. The key idea is that when people observe others' choices, they may ignore their own information, reducing the overall informativeness of the decision process. This creates a "herd externality," where the actions of one individual negatively affect the decisions of others. The model considers a population of individuals who must choose between options, with one correct option and others that are less favorable. Each person has a signal about the correct option, which may or may not be accurate. The decision process is sequential, with each person observing the choices of those before them. The paper shows that in equilibrium, individuals may follow the crowd rather than using their own information, leading to inefficient outcomes. The paper also discusses the welfare implications of herd behavior, showing that it can lead to suboptimal decisions even when individuals have accurate information. The model highlights the importance of information and the potential for inefficiency when individuals rely on others' choices rather than their own. The results suggest that in some cases, it may be better to restrict individuals from using others' information to improve overall welfare. The paper concludes that herd behavior is a significant phenomenon in economics and social decision-making, and that understanding its causes and consequences is crucial for analyzing real-world situations.