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Can You Believe Your Neighbors' Behaviors?

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  • Shunichiro Sasaki

    ()
    (Osaka University)

  • Toshiji Kawagoe

    ()
    (Future University - Hakodate)

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    Abstract

    In the theoretical assumption of informational cascades, private signals and predecessors' actions are equivalently informative before informational cascades, but are not once informational cascades have started. This experimental study tests this assumption by measuring the informativeness of private signals and predecessors'' actions for human subjects in and out of informational cascades. We observed that subjects in informational cascades do not extract much information from predecessors'' actions, indicating that they recognize other subjects'' cascading behaviors, that subjects rely more on their private signals than on predecessors'' actions even when both of them are equivalently informative, and that subjects cannot estimate posterior beliefs precisely in a Bayesian way due to cognitive biases such as anchoring and adjustment or conservatism.

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume3/EB-06C90003A.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 3 (2006)
    Issue (Month): 11 ()
    Pages: 1-11

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    Handle: RePEc:ebl:ecbull:eb-06c90003

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    1. 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.
    2. 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.
    3. Angela A. Hung & Charles R. Plott, 2001. "Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions," American Economic Review, American Economic Association, American Economic Association, vol. 91(5), pages 1508-1520, December.
    4. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    5. Yaw Nyarko & Andrew Schotter, 2002. "An Experimental Study of Belief Learning Using Elicited Beliefs," Econometrica, Econometric Society, Econometric Society, vol. 70(3), pages 971-1005, May.
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