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Signal Accuracy and Informational Cascades

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Author Info

  • Ivan Pastine

    (University College Dublin)

  • Tuvana Pastine

    (National University of Ireland Maynooth)

Abstract

We extend the Bikhchandani, Hirshleifer and Welch (1992) informational cascade framework to allow for asymmetric signal accuracy. Simulations demonstrate that even small departures from symmetry may lead to non-monotonic effects of signal accuracy on the likelihood of an inefficient cascade.

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File URL: http://www.ucd.ie/economics/research/papers/2006/WP06.20.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200620.

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Length: 13 pages
Date of creation: 28 Nov 2006
Date of revision:
Handle: RePEc:ucn:wpaper:200620

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Postal: UCD, Belfield, Dublin 4
Phone: +353-1-7067777
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics
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Related research

Keywords: Learning; Herding; Signal Precision;

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References

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  1. 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.
  2. Zvika NEEMAN & Gerhard O. OROSEL, 1997. "Herding and the Winner's Curse in Markets with Sequential Bids," Vienna Economics Papers vie9711, University of Vienna, Department of Economics.
  3. De Vany, Arthur & Lee, Cassey, 2001. "Quality signals in information cascades and the dynamics of the distribution of motion picture box office revenues," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 593-614, March.
  4. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  5. 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.
  6. Pastine, Tuvana, 2005. "Social Learning in Continuous Time: When are Informational Cascades More Likely to be Inefficient?," CEPR Discussion Papers 5120, C.E.P.R. Discussion Papers.
  7. Choi, Chong Ju & Dassiou, Xeni & Gettings, Stephen, 2000. "Herding Behaviour and the Size of Customer Base as a Commitment to Quality," Economica, London School of Economics and Political Science, vol. 67(267), pages 375-98, August.
  8. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September.
  9. Kennedy, Robert E, 2002. "Strategy Fads and Competitive Convergence: An Empirical Test for Herd Behavior in Prime-Time Television Programming," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 57-84, March.
  10. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  11. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  13. Lee Nelson, 2002. "Persistence and Reversal in Herd Behavior: Theory and Application to the Decision to Go Public," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 65-95, March.
  14. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
  15. 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.
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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.

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