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Classroom Games: Information Cascades

Author

Listed:
  • Lisa R. Anderson
  • Charles A. Holt

Abstract

This paper describes how to set up a classroom exercise in which students see private signals and make public decisions in sequence. A pattern of conforming decisions in this context is called an information cascade. Once a cascade starts, it is rational for students to ignore their private signals and follow the pattern of previous decisions. This exercise provides an interactive framework that facilitates discussions of Bayes's rule, information, and social conformity.

Suggested Citation

  • Lisa R. Anderson & Charles A. Holt, 1996. "Classroom Games: Information Cascades," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 187-193, Fall.
    • Handle: RePEc:aea:jecper:v:10:y:1996:i:4:p:187-93
    Note: DOI: 10.1257/jep.10.4.187
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.4.187
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    References listed on IDEAS

    as
    1. McKelvey, Richard D. & Ordeshook, Peter C., 1985. "Elections with limited information: A fulfilled expectations model using contemporaneous poll and endorsement data as information sources," Journal of Economic Theory, Elsevier, vol. 36(1), pages 55-85, June.
    2. Welch, Ivo, 1992. "Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
    3. 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.
    4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Baddeley, M. & Burke, C. & Schultz, W. & Tobler, P., 2012. "Herding in Financial Behaviour: A Behavioural and Neuroeconomic Analysis of Individual Differences," Cambridge Working Papers in Economics 1225, Faculty of Economics, University of Cambridge.
    2. Baddeley, Michelle & Parkinson, Sophia, 2012. "Group decision-making: An economic analysis of social influence and individual difference in experimental juries," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(5), pages 558-573.
    3. Bogaçhan 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.
    4. Buda, Rodolphe, 2009. "Learning-Testing Process in Classroom: An Empirical Simulation Model," MPRA Paper 12146, University Library of Munich, Germany.
    5. repec:plo:pone00:0202335 is not listed on IDEAS
    6. Bekius, Femke & Meijer, Sebastiaan & de Bruijn, Hans, 2018. "Collaboration patterns in the Dutch railway sector: Using game concepts to compare different outcomes in a unique development case," Research in Transportation Economics, Elsevier, vol. 69(C), pages 360-368.
    7. Femke Bekius & Sebastiaan Meijer & Hugo Thomassen, 2022. "A Real Case Application of Game Theoretical Concepts in a Complex Decision-Making Process: Case Study ERTMS," Group Decision and Negotiation, Springer, vol. 31(1), pages 153-185, February.
    8. Tong, Chao & He, Wenbo & Niu, Jianwei & Xie, Zhongyu, 2016. "A novel information cascade model in online social networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 297-310.
    9. Michelle Baddeley, 2020. "Hoarding in the age of COVID-19," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 4(S), pages 69-75, June.
    10. Georgy Lukyanov & Konstantin Shamruk & Ekaterina Logina, 2025. "Endogenous Quality in Social Learning," Papers 2508.20539, arXiv.org, revised Nov 2025.
    11. Charles A. Holt, 2011. "Teaching Experimental Economics: Reinforcing Paradigms and Bringing Research into the Undergraduate Classroom," Chapters, in: Gail M. Hoyt & KimMarie McGoldrick (ed.), International Handbook on Teaching and Learning Economics, chapter 47, Edward Elgar Publishing.
    12. Lukyanov, Georgy & Shamruk, Konstantin & Logina, Ekaterina, 2025. "Endogenous Quality in Social Learning," TSE Working Papers 25-1680, Toulouse School of Economics (TSE).
    13. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
    14. Jonathan Guest, 2015. "Reflections on ten years of using economics games and experiments in teaching," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1115619-111, December.

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    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General

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