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Is playing alone in the darkness sufficient to prevent informational cascades?

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  • Annamaria Fiore
  • Andrea Morone

Abstract

Seminal models of herd behaviour and informational cascades point out the existence of information negative externalities, and propose to destroy information in order to achieve social improvements. Although in the last years many features of herd behaviour and informational cascades have been studied, this particular aspect has never been extensively analysed. In this article we investigate, both theoretically and experimentally, whether and to which extent destroying information can improve welfare.

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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 2005-09.

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Length: 18 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:esi:discus:2005-09

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  1. Gary S. Becker, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," University of Chicago - George G. Stigler Center for Study of Economy and State 67, Chicago - Center for Study of Economy and State.
  2. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
  3. 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.
  4. 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.
  5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  6. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
  7. Daniel Sgroi, 2000. "The Right Choice at the Right Time: A Herding Experiment in Endogenous Time," Economics Series Working Papers 2000-W15, University of Oxford, Department of Economics.
  8. Abhijit Banerjee & Drew Fudenberg, 2010. "Word of Mouth Learning," Levine's Working Paper Archive 723, David K. Levine.
  9. John Hey & Louise Allsopp, . "Two Experiments to Test a Model of Herd Behaviour," Discussion Papers 99/24, Department of Economics, University of York.
  10. Sgroi, D., 2004. "Minority Opinion and Herd Behaviour," Cambridge Working Papers in Economics 0421, Faculty of Economics, University of Cambridge.
  11. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
  12. Andrea Morone, 2002. "Financial Market in the Laboratory," Computing in Economics and Finance 2002 151, Society for Computational Economics.
  13. John D. Hey & Andrea Morone, 2004. "Do Markets Drive Out Lemmings-or Vice Versa?," Economica, London School of Economics and Political Science, vol. 71(284), pages 637-659, November.
  14. D. Sgroi, 2001. "Controlling the Herd: Applications of Herding Theory," Cambridge Working Papers in Economics 0106, Faculty of Economics, University of Cambridge.
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Cited by:
  1. Fiore, Annamaria & Morone, Andrea, 2007. "A Simple Note on Informational Cascades," Economics Discussion Papers 2007-21, Kiel Institute for the World Economy.
  2. Andrea Morone, 2005. "Financial Market in the Laboratory, an Experimental Analysis of some Stylized Facts," Papers on Strategic Interaction 2005-27, Max Planck Institute of Economics, Strategic Interaction Group.

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