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Fragility of information cascades: an experimental study using elicited beliefs

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  • Anthony Ziegelmeyer

    ()

  • Frédéric Koessler

    ()

  • Juergen Bracht

    ()

  • Eyal Winter

    ()

Abstract

This paper examines the occurrence and fragility of information cascades in two laboratory experiments. One group of low informed participants sequentially guess which of two states has been randomly chosen. In a matched pairs design, another group of high informed participants make similar guesses after having observed the guesses of the low informed participants. In the second experiment, participants' beliefs about the chosen state are elicited. In equilibrium, low informed players who observe an established pattern of identical guesses herd without regard to their private information whereas high informed players always guess according to their private information. Equilibrium behavior implies that information cascades emerge in the group of low informed participants, the belief based solely on cascade guesses is stationary, and information cascades are systematically broken by high informed participants endowed with private information contradicting the cascade guesses. Experimental results show that the behavior of low informed participants is qualitatively in line with the equilibrium prediction. Information cascades often emerge in our experiments. The tendency of low informed participants to engage in cascade behavior increases with the number of identical guesses. Our main finding is that information cascades are not fragile. The behavior of high informed participants differs markedly from the equilibrium prediction. Only one-third of laboratory cascades are broken by high informed participants endowed with private information contradicting the cascade guesses. The relative frequency of cascade breaks is 15% for the situations where five or more identical guesses are observed. Participants' elicited beliefs are strongly consistent with their own behavior and show that, unlike in equilibrium, the more cascade guesses participants observe the more they believe in the state favored by those guesses.
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Suggested Citation

  • Anthony Ziegelmeyer & Frédéric Koessler & Juergen Bracht & Eyal Winter, 2010. "Fragility of information cascades: an experimental study using elicited beliefs," Experimental Economics, Springer;Economic Science Association, vol. 13(2), pages 121-145, June.
  • Handle: RePEc:kap:expeco:v:13:y:2010:i:2:p:121-145 DOI: 10.1007/s10683-009-9232-x
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    References listed on IDEAS

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    Cited by:

    1. Güth, Werner & Vittoria Levati, M. & Montinari, Natalia, 2014. "Ranking alternatives by a fair bidding rule: A theoretical and experimental analysis," European Journal of Political Economy, Elsevier, pages 206-221.
    2. repec:eee:eecrev:v:94:y:2017:i:c:p:148-165 is not listed on IDEAS
    3. Christoph March, 2011. "Adaptive social learning," PSE Working Papers halshs-00572528, HAL.
    4. Crosetto, P. & Filippin, A., 2015. "The sound of others: suprising evidence of conformist behavior," Working Papers 2015-07, Grenoble Applied Economics Laboratory (GAEL).
    5. Manski, Charles F. & Neri, Claudia, 2013. "First- and second-order subjective expectations in strategic decision-making: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 81(C), pages 232-254.
    6. Christoph March & Sebastian Krügel & Anthony Ziegelmeyer, 2012. "Do We Follow Private Information when We Should? Laboratory Evidence on Nave Herding," Jena Economic Research Papers 2012-002, Friedrich-Schiller-University Jena.
    7. Anthony Ziegelmeyer & Christoph March & Sebastian Kr?gel, 2013. "Do We Follow Others When We Should? A Simple Test of Rational Expectations: Comment," American Economic Review, American Economic Association, pages 2633-2642.
    8. Bohren, J. Aislinn, 2016. "Informational herding with model misspecification," Journal of Economic Theory, Elsevier, vol. 163(C), pages 222-247.
    9. Meub, Lukas & Proeger, Till & Hüning, Hendrik, 2013. "A comparison of endogenous and exogenous timing in a social learning experiment," Center for European, Governance and Economic Development Research Discussion Papers 167, University of Goettingen, Department of Economics.
    10. Bossan, Benjamin & Jann, Ole & Hammerstein, Peter, 2015. "The evolution of social learning and its economic consequences," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 266-288.

    More about this item

    Keywords

    Information cascades; Fragility; Elicited beliefs; Depth-of-reasoning analysis; Experimental economics; C72; C92; D82;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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