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Signal Qualities, Order of Decisions, and Informational Cascades: Experimental Evidence

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  • Shunichiro Sasaki

    ()
    (Institute of Social and Economic Research, Osaka University)

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    Abstract

    This experimental study investigates the effect of signal strength on the formation of informational cascades by introducing heterogeneous signal qualities associated with the fixed order of decisions on the two different decision-making systems, anti-seniority and seniority. Major findings include that complete cascades occur more frequently in seniority than in anti-seniority, that seniority is more efficient than anti-seniority, but increases the risk of creating negative cascades, and that private signals can be extracted more effectively in anti-seniority than in seniority. For both treatments, rational complete cascades occur less frequently than those suggested by the Bayesian model. For the heuristic subjects employed, the anchoring effect of private signals is partially identified.

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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 3 (2005)
    Issue (Month): 34 ()
    Pages: 1-11

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    Handle: RePEc:ebl:ecbull:eb-05c90006

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    Keywords: anchoring effect;

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    1. Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, Elsevier, vol. 81(3), pages 393-421, September.
    2. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
    3. Steffen Huck & Joerg Oechssler, 1999. "Informational cascades in the laboratory: Do they occur for the right reasons?," Experimental, EconWPA 9901001, EconWPA.
    4. Bogaçhan Çelen & Shachar Kariv, 2004. "Distinguishing Informational Cascades from Herd Behavior in the Laboratory," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 484-498, June.
    5. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, American Economic Association, vol. 87(5), pages 847-62, December.
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