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Aggregate information cascades

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  • Guarino, Antonio
  • Harmgart, Heike
  • Huck, Steffen

Abstract

We introduce a new model of aggregate information cascades where only one of two possible actions is observable to others. Agents make a binary decision in sequence. The order is random and agents are not aware of their own position in the sequence. When called upon, they are only informed about the total number of others who have chosen the observable action before them. This informational structure arises naturally in many applications. Our most important result is that only one type of cascade arises in equilibrium, the aggregate cascade on the observable action. A cascade on the unobservable action never arises.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 73 (2011)
Issue (Month): 1 (September)
Pages: 167-185

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Handle: RePEc:eee:gamebe:v:73:y:2011:i:1:p:167-185

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Social learning Information cascades Information aggregation Herd behavior;

References

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  1. Abhijit Banerjee & Drew Fudenberg, 2010. "Word of Mouth Learning," Levine's Working Paper Archive 723, David K. Levine.
  2. Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Working papers 96-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Antonio Guarino & Philippe Jehie, 2009. "Social Learning with Coarse Inference," Levine's Working Paper Archive 814577000000000292, David K. Levine.
  4. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 9(1), pages 25-66.
  5. Helios Herrera & Johannes Horner, 2009. "Biased Social Learning," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1738, Cowles Foundation for Research in Economics, Yale University.
  6. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 797-817, August.
  7. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, 9.
  8. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, 9.
  9. 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.
  10. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
  11. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, Elsevier, vol. 47(1), pages 72-86, April.
  12. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, American Finance Association, vol. 62(2), pages 629-668, 04.
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Citations

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Cited by:
  1. Herrera, Helios & Hörner, Johannes, 2013. "Biased social learning," Games and Economic Behavior, Elsevier, Elsevier, vol. 80(C), pages 131-146.
  2. Weizsäcker, Georg, 2008. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," IZA Discussion Papers 3616, Institute for the Study of Labor (IZA).
  3. Antonio Guarino & Steffen Huck & Heike Harmgart, 2008. "When half the truth is better than the truth: A Theory of aggregate information cascades," WEF Working Papers, ESRC World Economy and Finance Research Programme, Birkbeck, University of London 0046, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  4. Vincent Mak & Rami Zwick, 2014. "Experimenting and learning with localized direct communication," Experimental Economics, Springer, Springer, vol. 17(2), pages 262-284, June.

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