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Herding with and without Payoff Externalities - An Internet Experiment

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Author Info

  • Mathias Drehmann

    (Bank of England)

  • Jörg Oechssler

    ()
    (University of Heidelberg, Department of Economics)

  • Andreas Roider

    ()
    (University of Bonn, Department of Economics and Stanford University)

Abstract

Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experi- mentally investigate the effects of several different forms of payoff externalities (e.g., network effects, first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation e¤ects (i.e., the influence of success models) in the context of herding.

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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0420.

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Length: 35 pages
Date of creation: Apr 2005
Date of revision: Apr 2005
Handle: RePEc:awi:wpaper:0420

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Keywords: information cascades; herding; network e¤ects; experiment; internet.;

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References

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Citations

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Cited by:
  1. Christoph Brunner & Jacob K. Goeree, 2009. "Wise crowds or wise minorities?," IEW - Working Papers 439, Institute for Empirical Research in Economics - University of Zurich.
  2. Burkhard C. Schipper & Jörg Oechssler, 2008. "Incentives for Subjects in Internet Experiments," Working Papers 81, University of California, Davis, Department of Economics.
  3. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2008. "Cooling-Off in Negotiations - Does It Work?," CEPR Discussion Papers 6807, C.E.P.R. Discussion Papers.
  4. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive Abilities and Behavioral Biases," Working Papers 0465, University of Heidelberg, Department of Economics.
  5. Efraim Berkovich, 2011. "Search and herding effects in peer-to-peer lending: evidence from prosper.com," Annals of Finance, Springer, vol. 7(3), pages 389-405, August.
  6. Fahr, René & Irlenbusch, Bernd, 2011. "Who follows the crowd—Groups or individuals?," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 200-209.
  7. Cipriani, Marco & Guarino, Antonio, 2008. "Transaction costs and informational cascades in financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 581-592, December.
  8. Morone, Andrea & Ozdemir, Ozlem, 2012. "Black swan protection: an experimental investigation," MPRA Paper 38842, University Library of Munich, Germany.

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