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Does cascade behavior in information cascades reflect Bayesian updating? An experimental study

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  • Oberhammer, Clemens
  • Stiehler, Andreas
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    Abstract

    Updating behavior in cascade experiments is usually investigated on the basis of urn prediction. But urn predictions alone can only provide a very rough information on individual updating behavior. Therefore, we implement a BDM mechanism. Subjects have to submit maximum prices that they are willing to pay to participate in the prediction game. This enables us to study subjects' probabilty formation less crudely. The results show that in many situations herding occurs in accordance with the standard BHW model but cannot be explained neither by rational Bayesian updating nor by heuristics identi...ed in former cascade experiments. --

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    Bibliographic Info

    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2001,32.

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    Date of creation: 2001
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    Handle: RePEc:zbw:sfb373:200132

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    1. Frédéric KOESSLER & Anthony ZIEGELMEYER, 2000. "Tie-breaking Rules and Informational Cascades: A Note," Working Papers of BETA 2000-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Huck, Steffen & Oechssler, Jorg, 2000. "Informational cascades in the laboratory: Do they occur for the right reasons?," Journal of Economic Psychology, Elsevier, vol. 21(6), pages 661-671, December.
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    Cited by:
    1. Drehmann, Mathias & Oechssler, Joerg & Roider, Andreas, 2003. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," University of California at Santa Barbara, Economics Working Paper Series qt6zf5469f, Department of Economics, UC Santa Barbara.
    2. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2004. "Herding with and without Payoff Externalities - An Internet Experiment," Bonn Econ Discussion Papers bgse15_2004, University of Bonn, Germany.

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