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Wise crowds or wise minorities?

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Author Info
Christoph Brunner
Jacob K. Goeree
Abstract

This paper reports results from social learning experiments where subjects choose between two options and each subject has a small chance of being perfectly informed about which option is correct. In treatment "sequence", subjects observe the entire sequence of predecessors' choices while in treatment "no-sequence" they only observe the number of times each option has been chosen. The theoretical predictions are that subjects follow their immediate predecessors in treatment sequence and follow the minority in treatment no-sequence (Callander and Hörner, 2009). The former prediction is borne out in the data, but subjects tend to follow the majority in treatment no-sequence. We observe substantial heterogeneity in levels of strategic thinking, as predicted by level-k and Cognitive Hierarchy. While these models reproduce some features of our data, their fit is poor because of the assumed best-response behavior. Allowing for some degree of "trembling" improves the fit significantly, especially if subjects are aware that others tremble, as in logit-QRE. The "noisy introspection" model proposed by Goeree and Holt (2004), which combines different levels of thinking with error-prone behavior, best describes the data.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp439.

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Date of creation: Sep 2009
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Handle: RePEc:zur:iewwpx:439

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Related research
Keywords: Social learning; experiments; quantal response equilibrium; level-k models; noisy introspection;

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Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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  1. Boğaçhan Çelen & Shachar Kariv, 2004. "Distinguishing Informational Cascades from Herd Behavior in the Laboratory," American Economic Review, American Economic Association, vol. 94(3), pages 484-498, June. [Downloadable!]
  2. Callander, Steven & Hörner, Johannes, 2009. "The wisdom of the minority," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1421-1439, July. [Downloadable!] (restricted)
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  3. Drehmann, Mathias & Oechssler, Jörg & Roider, Andreas, 2005. "Herding With and Without Payoff Externalities - An Internet Experiment," CEPR Discussion Papers 5310, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, vol. 81(3), pages 393-421, September. [Downloadable!] (restricted)
  5. JACOB K. GOEREE & THOMAS R. PALFREY & BRIAN W. ROGERS & RICHARD D. Mc KELVEY, 2007. "Self-Correcting Information Cascades," Review of Economic Studies, Blackwell Publishing, vol. 74(3), pages 733-762, 07. [Downloadable!] (restricted)
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  6. Jacob Goeree & Thomas Palfrey & Brian Rogers, 2006. "Social learning with private and common values," Economic Theory, Springer, vol. 28(2), pages 245-264, 06. [Downloadable!] (restricted)
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  7. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
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  8. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August. [Downloadable!] (restricted)
  9. Goeree, Jacob K. & Holt, Charles A., 2004. "A model of noisy introspection," Games and Economic Behavior, Elsevier, vol. 46(2), pages 365-382, February. [Downloadable!] (restricted)
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  10. Dorothea K¸bler & Georg Weizs”cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Blackwell Publishing, vol. 71(2), pages 425-441, 04. [Downloadable!] (restricted)
  11. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," Experimental 0502002, EconWPA. [Downloadable!]
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  12. Mathias Drehmann & Joerg Oechssler & Andreas Roider, 2002. "Herding and Contrarian Behavior in Financial Markets - An Internet Experiment," Finance 0210005, EconWPA. [Downloadable!]
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