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Does Cascade Behavior Reflect Bayesian Updating? –An Experimental Study--

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  • Clemens Oberhammer
  • Andreas Stiehler
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    Abstract

    We examine the explanatory power of cascade models by implementing the BDM-mechanism in a simple cascade experiment in which subject have to decide on the prediction of a randomly chosen urn. Assigned price limits to participate in the prediction game are used as indicators of subjective probabilities. We are thus able to test the explanatory power of the standard BHW model (Bickchandani, Hirshleifer and Welch, 1992) in comparison to cascade models which incorporate individual decision errors. Focusing on stated price limits corresponding to urn predictions in line with both, standard and error BHW models our data indicate that the inclusion of errors does not significantly improve the explanatory power of the standard approach.

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    Bibliographic Info

    Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2003-01.

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    Length: 27 pages
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    Handle: RePEc:esi:discus:2003-01

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    Related research

    Keywords: information cascades; Bayes' rule; decisions under risk and uncertainty; BDM; experimental economics;

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    1. Anderson, Lisa R. & Holt, Charles A., 2008. "Information Cascade Experiments," Handbook of Experimental Economics Results, Elsevier.
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