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Should I Stay or should I Go? Bandwagons in the lab

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  • Heggedal, Tom-Reiel
  • Helland, Leif
  • Neset Joslin, Knut-Eric

Abstract

We experimentally investigate the impact of strategic uncertainty and complementarity on leader and follower behavior using the model of Farrell and Saloner (1985). At the core of the model are endogenous timing, irreversible actions and private valuations. We find that strategic complementarity strongly determines follower behavior. Once a subject decides to abandon the status quo the probability that other players jump on the bandwagon increases sharply. However, there is a reluctance to lead when leading is a conditional best response. We explain this deviation from the neo-classical equilibrium by injecting some noise in the equilibrium concept. We also find that cheap talk improves efficiency.

Suggested Citation

  • Heggedal, Tom-Reiel & Helland, Leif & Neset Joslin, Knut-Eric, 2018. "Should I Stay or should I Go? Bandwagons in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 86-97.
  • Handle: RePEc:eee:jeborg:v:150:y:2018:i:c:p:86-97
    DOI: 10.1016/j.jebo.2018.03.019
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    More about this item

    Keywords

    Strategic complementarity; Type uncertainty; Endogenous timing; Laboratory experiment;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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