Advanced Search
MyIDEAS: Login to save this paper or follow this series

Herding With and Without Payoff Externalities - An Internet Experiment

Contents:

Author Info

  • Drehmann, Mathias
  • Oechssler, Jörg
  • Roider, Andreas

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 experimentally 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 effects (i.e., the influence of success models) in the context of herding.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP5310.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5310.

as in new window
Length:
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cpr:ceprdp:5310

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: experiment; herding; information cascades; internet; network effects;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Dorothea Kübler & Georg Weizsäcker, 2005. "Are Longer Cascades More Stable?," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 330-339, 04/05.
  2. Drehmann, Mathias & Oechssler, Joerg & Roider, Andreas, 2003. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," University of California at Santa Barbara, Economics Working Paper Series qt6zf5469f, Department of Economics, UC Santa Barbara.
  3. Anderhub,Vital & Müller,Rudolf & Schmidt,Carsten, 2001. "Design and Evaluation of an Economic Experiment via the Internet," Research Memorandum 016, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  4. Antoni Bosch-Dom?nech & Jose Garcia-Montalvo & Rosemarie Nagel & Albert Satorra, 2002. "One, two, (three), infinity: Newspaper and lab beauty-contest experiments," Artefactual Field Experiments 00011, The Field Experiments Website.
  5. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
  6. Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Economics Papers 115, Economics Group, Nuffield College, University of Oxford.
  7. Forsythe, Robert & Forrest Nelson & George R. Neumann & Jack Wright, 1992. "Anatomy of an Experimental Political Stock Market," American Economic Review, American Economic Association, vol. 82(5), pages 1142-61, December.
  8. Hyun Song Shin & Giancarlo Corsetti & Amil Dasgupta & Stephen Morris, 2001. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," FMG Discussion Papers dp372, Financial Markets Group.
  9. Güth, Werner & Schmidt, Carsten & Sutter, Matthias, 2001. "Fairness in the mail and opportunism in the internet: A newspaper experiment on ultimatum bargaining," SFB 373 Discussion Papers 2001,42, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  10. Paul Klemperer & Joseph Farrell, 2006. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Economics Series Working Papers 2006-W07, University of Oxford, Department of Economics.
  11. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," American Economic Review, American Economic Association, vol. 95(5), pages 1427-1443, December.
  12. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
  13. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  14. Angela Hung & Jeff Dominitz, 2004. "Homogeneous Actions and Hetergeneous Beliefs: Experimental Evidence on the Formation of Information Cascades," Econometric Society 2004 North American Winter Meetings 64, Econometric Society.
  15. Shavit, Tal & Sonsino, Doron & Benzion, Uri, 2001. "A comparative study of lotteries-evaluation in class and on the Web," Journal of Economic Psychology, Elsevier, vol. 22(4), pages 483-491, August.
  16. repec:wop:humbsf:2001-32 is not listed on IDEAS
  17. Jonathan Alevy & Michael Haigh & John List, 2005. "Information cascades: Evidence from a field experiment with financial market professionals," Framed Field Experiments 00116, The Field Experiments Website.
  18. Guarino, Antonio & Huck, Steffen & Jeitschko, Thomas D., 2004. "Can fear cause economic collapse? Insights from an experimental study," Discussion Papers, Research Unit: Market Processes and Governance SP II 2004-05, Social Science Research Center Berlin (WZB).
  19. Kübler, Dorothea & Weizsäcker, Georg, 2000. "Limited depth of reasoning and failure of cascade formation in the laboratory," SFB 373 Discussion Papers 2001,3, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  20. Charness, Gary & Haruvy, Ernan & Sonsino, Doron, 2007. "Social distance and reciprocity: An Internet experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 63(1), pages 88-103, May.
  21. Charness, Gary & haruvy, Ernan & Sonsino, Doron, 2001. "Social Distance and Reciprocity: The Internet vs. the Laboratory," University of California at Santa Barbara, Economics Working Paper Series qt46r1282v, Department of Economics, UC Santa Barbara.
  22. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December.
  23. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
  24. Jacob Goeree & Thomas Palfrey & Brian Rogers, 2004. "Self-Correcting Information Cascades," Levine's Bibliography 122247000000000153, UCLA Department of Economics.
  25. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  26. Bogachan Celen & Shachar Kariv & Andrew Schotter, 2003. "The Advice Puzzle: An Experimental Study of Social Learning Where Words Speak Louder Than Actions," Levine's Bibliography 666156000000000184, UCLA Department of Economics.
  27. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  28. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  29. VERGARI, Cecilia, 2004. "Herd behaviour, strategic complementarities and technology adoption," CORE Discussion Papers 2004063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  30. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December.
  31. Jonathan E. Alevy & Michael S. Haigh & John List, 2006. "Information Cascades: Evidence from An Experiment with Financial Market Professionals," NBER Working Papers 12767, National Bureau of Economic Research, Inc.
  32. Forsythe, Robert & Rietz, Thomas A. & Ross, Thomas W., 1999. "Wishes, expectations and actions: a survey on price formation in election stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 83-110, May.
  33. repec:fth:calaec:10-01 is not listed on IDEAS
  34. Anderson, Lisa R. & Holt, Charles A., 2008. "Information Cascade Experiments," Handbook of Experimental Economics Results, Elsevier.
  35. 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, vol. 100(5), pages 992-1026, October.
  36. Amil Dasgupta, 2000. "Social Learning with Payoff Complementarities," Econometric Society World Congress 2000 Contributed Papers 0322, Econometric Society.
  37. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  38. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
  39. Oberhammer, Clemens & Stiehler, Andreas, 2001. "Does cascade behavior in information cascades reflect Bayesian updating? An experimental study," SFB 373 Discussion Papers 2001,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  40. Ben Greiner & H.-Arno Jacobsen & Carsten Schmidt, 2002. "The Virtual Laboratory Infrstructure for Online Economic Experiments," Papers on Strategic Interaction 2002-35, Max Planck Institute of Economics, Strategic Interaction Group.
  41. Dorothea K¸bler & Georg Weizs”cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 425-441, 04.
  42. Curtis R. Taylor & Thomas D. Jeitschko, 2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches," American Economic Review, American Economic Association, vol. 91(1), pages 208-224, March.
  43. Frisell, Lars, 2003. " On the Interplay of Informational Spillovers and Payoff Externalities," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 582-92, Autumn.
  44. Anderson, Lisa R, 2001. "Payoff Effects in Information Cascade Experiments," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 609-15, October.
  45. 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, vol. 91(5), pages 1508-1520, December.
  46. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive abilities and behavioral biases," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 147-152, October.
  2. Christoph Brunner & Jacob K. Goeree, 2009. "Wise crowds or wise minorities?," IEW - Working Papers 439, Institute for Empirical Research in Economics - University of Zurich.
  3. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2008. "Cooling-Off in Negotiations - Does It Work?," Sonderforschungsbereich 504 Publications 08-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  4. Duersch, Peter & Oechssler, Jörg & Schipper, Burkhard C., 2009. "Incentives for subjects in internet experiments," Economics Letters, Elsevier, vol. 105(1), pages 120-122, October.
  5. Morone, Andrea & Ozdemir, Ozlem, 2012. "Black swan protection: an experimental investigation," MPRA Paper 38842, University Library of Munich, Germany.
  6. 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.
  7. Fahr, René & Irlenbusch, Bernd, 2011. "Who follows the crowd—Groups or individuals?," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 200-209.
  8. 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.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5310. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.