IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Herding with and without payoff externalities -- an internet experiment

  • Drehmann, Mathias
  • Oechssler, Jorg
  • Roider, Andreas

Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experimentally investigate the effects of several different forms of payoff externalities (e.g., network effects, first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation effects (i.e., the influence of success models) in the context of herding.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6V8P-4KCHCYY-1/2/81c31eaa700e03fb340f81f5e8cc0f81
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 25 (2007)
Issue (Month): 2 (April)
Pages: 391-415

as
in new window

Handle: RePEc:eee:indorg:v:25:y:2007:i:2:p:391-415
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December.
  2. Curtis R. Taylor & Thomas D. Jeitschko, 2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches," American Economic Review, American Economic Association, vol. 91(1), pages 208-224, March.
  3. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2001. "Does one Soros make a difference?: a theory of currency crises with large and small traders," LSE Research Online Documents on Economics 25045, London School of Economics and Political Science, LSE Library.
  4. V. Anderhub & R. Müller & C. Schmidt, 1998. "Design and Evaluation of an Economic Experiment via the Internet," SFB 373 Discussion Papers 1998,69, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Antoni Bosch-Dom�nech & Jos� G. Montalvo & Rosemarie Nagel & Albert Satorra, 2002. "One, Two, (Three), Infinity, ...: Newspaper and Lab Beauty-Contest Experiments," American Economic Review, American Economic Association, vol. 92(5), pages 1687-1701, December.
  6. Mathias Drehmann & J�rg Oechssler & Andreas Roider, 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1403-1426, December.
  7. John List & Jonathan Alevy & Michael Haigh, 2005. "Information cascades: Evidence from a field experiment with financial market professionals," Framed Field Experiments 00116, The Field Experiments Website.
  8. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
  9. Farrell, Joseph & Klemperer, Paul, 2006. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Competition Policy Center, Working Paper Series qt9n26k7v1, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  10. Charness, Gary & haruvy, Ernan & Sonsino, Doron, 2001. "Social Distance and Reciprocity: The Internet vs. the Laboratory," University of California at Santa Barbara, Economics Working Paper Series qt3dt073wb, Department of Economics, UC Santa Barbara.
  11. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
  12. Angela Hung & Jeff Dominitz, 2004. "Homogeneous Actions and Hetergeneous Beliefs: Experimental Evidence on the Formation of Information Cascades," Econometric Society 2004 North American Winter Meetings 64, Econometric Society.
  13. Bogachan Celen & Shachar Kariv & Andrew Schotter, 2003. "The Advice Puzzle: An Experimental Study of Social Learning Where Words Speak Louder Than Actions," Levine's Bibliography 666156000000000184, UCLA Department of Economics.
  14. Oberhammer, Clemens & Stiehler, Andreas, 2001. "Does cascade behavior in information cascades reflect Bayesian updating? An experimental study," SFB 373 Discussion Papers 2001,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  15. Werner Güth & Carsten Schmidt & Matthias Sutter, 2003. "Fairness in the Mail and Opportunism in the Internet: A Newspaper Experiment on Ultimatum Bargaining," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 243-265, 05.
  16. Dorothea Kübler & Georg Weizsäcker, 2005. "Are Longer Cascades More Stable?," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 330-339, 04/05.
  17. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  18. Anderson, Lisa R. & Holt, Charles A., 2008. "Information Cascade Experiments," Handbook of Experimental Economics Results, Elsevier.
  19. Jacob K. Goeree & Thomas R. Palfrey & Brian W. Rogers & Richard D. McKelvey, 2006. "Self-Correcting Information Cascades," Levine's Bibliography 321307000000000211, UCLA Department of Economics.
  20. 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.
  21. Ben Greiner & H.-Arno Jacobsen & Carsten Schmidt, 2002. "The Virtual Laboratory Infrstructure for Online Economic Experiments," Papers on Strategic Interaction 2002-35, Max Planck Institute of Economics, Strategic Interaction Group.
  22. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," American Economic Review, American Economic Association, vol. 95(5), pages 1427-1443, December.
  23. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
  24. Jonathan E. Alevy & Michael S. Haigh & John List, 2006. "Information Cascades: Evidence from An Experiment with Financial Market Professionals," NBER Working Papers 12767, National Bureau of Economic Research, Inc.
  25. Dorothea Kübler & Georg Weizs�cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 425-441.
  26. Anderson, Lisa R, 2001. "Payoff Effects in Information Cascade Experiments," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 609-15, October.
  27. VERGARI, Cecilia, 2004. "Herd behaviour, strategic complementarities and technology adoption," CORE Discussion Papers 2004063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  28. Frisell, Lars, 2003. " On the Interplay of Informational Spillovers and Payoff Externalities," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 582-92, Autumn.
  29. Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Economics Papers 115, Economics Group, Nuffield College, University of Oxford.
  30. Plott, Charles & Hung, Angela, 1998. "Information Cascades: Replication and an Extension to Majority Rule and Conformity Rewarding Institutions," Working Papers 1051, California Institute of Technology, Division of the Humanities and Social Sciences.
  31. Guarino, Antonio & Huck, Steffen & Jeitschko, Thomas D., 2004. "Can fear cause economic collapse? Insights from an experimental study
    [Kann Angst zu einem Wirtschaftszusammenbruch führen? Erkenntnisse aus einer experimentellen Studie]
    ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2004-05, Social Science Research Center Berlin (WZB).
  32. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
  33. 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.
  34. Charness, Gary & Haruvy, Ernan & Sonsino, Doron, 2007. "Social distance and reciprocity: An Internet experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 63(1), pages 88-103, May.
  35. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  36. Shavit, Tal & Sonsino, Doron & Benzion, Uri, 2001. "A comparative study of lotteries-evaluation in class and on the Web," Journal of Economic Psychology, Elsevier, vol. 22(4), pages 483-491, August.
  37. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
  38. Forsythe, Robert & Forrest Nelson & George R. Neumann & Jack Wright, 1992. "Anatomy of an Experimental Political Stock Market," American Economic Review, American Economic Association, vol. 82(5), pages 1142-61, December.
  39. 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.
  40. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  41. Amil Dasgupta, 2000. "Social Learning with Payoff Complementarities," Econometric Society World Congress 2000 Contributed Papers 0322, Econometric Society.
  42. Forsythe, Robert & Rietz, Thomas A. & Ross, Thomas W., 1999. "Wishes, expectations and actions: a survey on price formation in election stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 83-110, May.
  43. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Shin, Hyun, 2000. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," Cowles Foundation Discussion Papers 1273, Cowles Foundation for Research in Economics, Yale University.
  44. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  45. Dorothea K¸bler & Georg Weizs”cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 425-441, 04.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:25:y:2007:i:2:p:391-415. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.