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Do individuals recognize cascade behavior of others? - An experimental study

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  • Grebe, Tim
  • Schmid, Julia
  • Stiehler, Andreas

Abstract

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100, 992-1026). We study participants' probability perceptions based on maximum prices for participating in the prediction game. We find increasing maximum prices the more coinciding predictions of predecessors are observed, regardless of whether additional information is revealed by these predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 29 (2008)
Issue (Month): 2 (April)
Pages: 197-209

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Handle: RePEc:eee:joepsy:v:29:y:2008:i:2:p:197-209

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  18. Jordi Brandts & Gary Charness, 2000. "Hot vs. Cold: Sequential Responses and Preference Stability in Experimental Games," Experimental Economics, Springer, vol. 2(3), pages 227-238, March.
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Cited by:
  1. Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-60, December.
  2. Enke, Benjamin & Zimmermann, Florian, 2013. "Correlation Neglect in Belief Formation," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79900, Verein für Socialpolitik / German Economic Association.

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