IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Do We Follow Private Information when We Should? Laboratory Evidence on Naive Herding

  • Christoph March

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Sebastian Krügel

    (Max Planck Institute of Economics - Max Planck Institute of Economics)

  • Anthony Ziegelmeyer

    (Max Planck Institute of Economics - Max Planck Institute of Economics)

We investigate whether experimental participants follow their private information and contradict herds in situations where it is empirically optimal to do so. We consider two sequences of players, an observed and an unobserved sequence. Observed players sequentially predict which of two options has been randomly chosen with the help of a medium quality private signal. Unobserved players predict which of the two options has been randomly chosen knowing previous choices of observed and with the help of a low, medium or high quality signal. We use preprogrammed computers as observed players in half the experimental sessions. Our new evidence suggests that participants are prone to a 'social-confirmation' bias and it gives support to the argument that they naively believe that each observable choice reveals a substantial amount of that person's private information. Though both the 'overweighting-of-private-information' and the 'social-con firmation' bias coexist in our data, participants forgo much larger parts of earnings when herding naively than when relying too much on their private information. Unobserved participants make the empirically optimal choice in 77 and 84 percent of the cases in the human-human and computer-human treatment which suggests that social learning improves in the presence of lower behavioral uncertainty.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://halshs.archives-ouvertes.fr/docs/00/67/13/78/PDF/wp201207.pdf
Download Restriction: no

Paper provided by HAL in its series PSE Working Papers with number halshs-00671378.

as
in new window

Length:
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:hal:psewpa:halshs-00671378
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00671378
Contact details of provider: Web page: http://hal.archives-ouvertes.fr/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Andrew Chesher, 2008. "Instrumental variable models for discrete outcomes," CeMMAP working papers CWP30/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Weizsäcker, Georg, 2008. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," IZA Discussion Papers 3616, Institute for the Study of Labor (IZA).
  3. repec:hal:wpaper:halshs-00572528 is not listed on IDEAS
  4. Marco Cipriani & Antonio Guarino, 2008. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," Working Papers 2009-16, The George Washington University, Institute for International Economic Policy.
  5. Adeline Delavande, 2008. "Measuring revisions to subjective expectations," Journal of Risk and Uncertainty, Springer, vol. 36(1), pages 43-82, February.
  6. Richard Mckelvey & Thomas Palfrey, 1998. "Quantal Response Equilibria for Extensive Form Games," Experimental Economics, Springer, vol. 1(1), pages 9-41, June.
  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, vol. 103(6), pages 2633-42, October.
  8. R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
  9. Christoph March, 2011. "Adaptive social learning," PSE Working Papers halshs-00572528, HAL.
  10. Christoph March & Anthony Ziegelmeyer, 2009. "Behavioral Social Learning," Jena Economic Research Papers 2009-105, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:psewpa:halshs-00671378. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.