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Empirical models of discrete choice and belief updating in observational learning experiments

  • Dominitz, Jeff
  • Hung, Angela A.
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    Subjects in economics experiments are often asked to choose an action from a set of discrete choices. The logit-QRE approach to analyse these data places strong restrictions on how subjects in information cascades experiments extract information from observed outcomes and how they update beliefs in response to new information. We add a belief elicitation procedure to the experimental design that allows us to measure directly both the inferences drawn from publicly announced decisions and how beliefs are updated in response to new information. The reported beliefs tend to be well calibrated to frequentist probabilities and also predict individual choices. Contrary to previous conclusions, we find that respondents do not tend to overweight private information when updating beliefs. Our analysis suggests that the earlier findings arise because identification of the discrete choice model relies on a misspecified model of belief updating in response to preceding announcements.

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    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 69 (2009)
    Issue (Month): 2 (February)
    Pages: 94-109

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    Handle: RePEc:eee:jeborg:v:69:y:2009:i:2:p:94-109
    Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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    1. Philip A. Haile & Ali Horta�su & Grigory Kosenok, 2008. "On the Empirical Content of Quantal Response Equilibrium," American Economic Review, American Economic Association, vol. 98(1), pages 180-200, March.
    2. 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.
    3. Kraemer, Carlo & Noth, Markus & Weber, Martin, 2006. "Information aggregation with costly information and random ordering: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 59(3), pages 423-432, March.
    4. Mathias Drehmann & Jörg Oechssler, 2004. "Herding and Contrarian Behavior in Financial Markets - An Internet Experiment," Econometric Society 2004 North American Winter Meetings 55, Econometric Society.
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    7. Angela A. Hung & Charles R. Plott, 2001. "Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions," American Economic Review, American Economic Association, vol. 91(5), pages 1508-1520, December.
    8. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2004. "Regular quantal response equilibrium," Working Papers 1203, California Institute of Technology, Division of the Humanities and Social Sciences.
    9. 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.
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    12. Yaw Nyarko & Andrew Schotter, 2002. "An Experimental Study of Belief Learning Using Elicited Beliefs," Econometrica, Econometric Society, vol. 70(3), pages 971-1005, May.
    13. Grether, David M, 1980. "Bayes Rule as a Descriptive Model: The Representativeness Heuristic," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 537-57, November.
    14. McKelvey, Richard D & Page, Talbot, 1990. "Public and Private Information: An Experimental Study of Information Pooling," Econometrica, Econometric Society, vol. 58(6), pages 1321-39, November.
    15. Dominitz, Jeff, 2001. "Estimation of income expectations models using expectations and realization data," Journal of Econometrics, Elsevier, vol. 102(2), pages 165-195, June.
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