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

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Author Info

  • Annamaria Fiore

    (DSE, Università di Bari)

  • Andrea Morone

    (DSE, Università di Bari)

Abstract

Models of herd behaviour and informational cascades were theoretically developed in 1992 respectively by Banerjee (A simple model of herd behavior) and Bikhchandani, Hirshleifer and Welch (A Theory of Fads, Fashion, Custom and Cultural Change as Informational Cascades). Both articles pointed out the existence of an information externality that causes a welfare loss, and both proposed the idea that destroying an amount of information may turn out in a social improvement. Although this is an old idea and in the last years many features of herd behaviour and informational cascades were studied, this particular aspect was never developed or extensively analysed. In this article we will try to investigate this hypothesis both theoretically and experimentally.

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File URL: http://128.118.178.162/eps/exp/papers/0503/0503002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Experimental with number 0503002.

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Length: 19 pages
Date of creation: 04 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpex:0503002

Note: Type of Document - pdf; pages: 19
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Web page: http://128.118.178.162

Related research

Keywords: Informational Cascades; Individual Decision Making; Experiments; Information Externality;

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References

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  1. Sgroi, D., 2000. "The Right Choice at the Right Time: a Herding Experiment in Endogenous Time," Economics Papers 2000-w15, Economics Group, Nuffield College, University of Oxford.
  2. 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.
  3. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  4. 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.
  5. Andrea Morone, 2004. "Financial Market in the Laboratory," Experimental 0401002, EconWPA.
  6. 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.
  7. John Hey & Louise Allsopp, . "Two Experiments to Test a Model of Herd Behaviour," Discussion Papers 99/24, Department of Economics, University of York.
  8. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  9. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
  10. Sgroi, D., 2004. "Minority Opinion and Herd Behaviour," Cambridge Working Papers in Economics 0421, Faculty of Economics, University of Cambridge.
  11. 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.
  12. 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.
  13. 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.
  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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Citations

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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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