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A Simple Note on Informational Cascades

  • Fiore, Annamaria
  • Morone, Andrea

Seminal models of herd behaviour and informational cascades point out existence of negative information externalities, and propose to ?destroy? information in order to achieve social improvements. Although in the last years many features of herd behaviour and informational cascades have been studied, this particular aspect has never been extensively analysed. In this article we try to fill this gap, investigating both theoretically and experimentally whether and to which extent destroying information can improve welfare. Our empirical results show that this decisional mechanism actually leads to a behaviour pattern more consistent with the theory that in turn produces the predicted efficiency gain.

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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 2 (2008)
Issue (Month): ()
Pages: 1-21

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Handle: RePEc:zbw:ifweej:6905
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  1. Andrea Morone, 2004. "Financial Market in the Laboratory," Experimental 0401002, EconWPA.
  2. Gary S. Becker, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," University of Chicago - George G. Stigler Center for Study of Economy and State 67, Chicago - Center for Study of Economy and State.
  3. Allsopp, L. & Hey, J.D., 1998. "Two Experiments to Test a Model of Herd Behaviour," Discussion Papers 98-28, Department of Economics, University of Birmingham.
  4. 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.
  5. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Selten, Reinhard & Joachim Buchta, 1994. "Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions," Discussion Paper Serie B 270, University of Bonn, Germany.
  7. 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.
  8. Abhijit Banerjee & Drew Fudenberg, 2010. "Word of Mouth Learning," Levine's Working Paper Archive 723, David K. Levine.
  9. John D. Hey & Andrea Morone, 2004. "Do Markets Drive Out Lemmings-or Vice Versa?," Economica, London School of Economics and Political Science, vol. 71(284), pages 637-659, November.
  10. Annamaria Fiore & Andrea Morone, 2005. "Is playing alone in the darkness sufficient to prevent informational cascades?," Experimental 0503002, EconWPA.
  11. Tuvana Pastine & Ivan Pastine, 2006. "Signal accuracy and informational cascades," Working Papers 200620, School of Economics, University College Dublin.
  12. repec:bai:series:wp0013 is not listed on IDEAS
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