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Self-correcting Information Cascades

  • Goeree, Jacob
  • Palfrey, Thomas
  • Rogers, Brian
  • McKelvey, Richard

In laboratory experiments, information cascades are ephemeral phenomena, collapsing soon after they form, and them reforming again. The formation/collapse/reformation cycles occur frequently and repeatedly. Cascades may be reversed (collapse followed by a cascade on a different state) and more often than not, such a reversal is self-correcting: The cascade switches from the incorrect to the correct state. Past experimental work focused on relatively short horizons, where these interesting dynamics are rarely observed. We present experiments with a longer horizon, and also investigate the effect of signal informativeness. We propose a theoretical model, based on quantal response equilibrium, where temporary and self-correcting cascades arise as equilibrium phenomena. The model also predicts the systematic differences we observe experimentally in the dynamics, as a function of signal informativeness. We extend the basic model to include a parameter measuring base rate neglect and find it to be a statistically significant factor in the dynamics, resulting in somewhat faster rates of social learning.

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Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 1197.

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Length: 41 pages
Date of creation: Apr 2004
Date of revision:
Publication status: Published:
Handle: RePEc:clt:sswopa:1197
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