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Do Individuals Recognize Cascade Behavior of Others? - An Experimental Study -

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  • Tim Grebe
  • Julia Schmid
  • Andreas Stiehler

Abstract

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al., 1992). Using the BDM (Becker et al., 1964) mechanism 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

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-079.

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Length: 24 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-079

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Keywords: Information Cascades; Bayes' Rule; Decision Under Risk and Uncertainty; Experimental Economics.;

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Cited by:
  1. Benjamin Enke & Florian Zimmermann, 2013. "Correlation Neglect in Belief Formation," CESifo Working Paper Series 4483, CESifo Group Munich.
  2. Georg Weizsacker, 2008. "Do we follow others when we should? A simple test of rational expectations," LSE Research Online Documents on Economics 4945, London School of Economics and Political Science, LSE Library.

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