Do We Follow Private Information when We Should? Laboratory Evidence on Naive Herding
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.
|Date of creation:||Feb 2012|
|Date of revision:|
|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/ |
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.:
- Andrew Chesher, 2008.
"Instrumental variable models for discrete outcomes,"
CeMMAP working papers
CWP30/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Andrew Chesher, 2010. "Instrumental Variable Models for Discrete Outcomes," Econometrica, Econometric Society, vol. 78(2), pages 575-601, 03.
- 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).
- Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-60, December.
- Georg Weizsacker, 2008. "Do we follow others when we should? A simple test of rational expectations," LSE Research Online Documents on Economics 4945, London School of Economics and Political Science, LSE Library.
- repec:hal:wpaper:halshs-00572528 is not listed on IDEAS
- Marco Cipriani & Antonio Guarino, 2008.
"Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals,"
2009-16, The George Washington University, Institute for International Economic Policy.
- Marco Cipriani & Antonio Guarino, 2009. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 206-233, 03.
- Marco Cipriani & Antonio Guarino, 2008. "Herd Behavior in Financial Markets; An Experiment with Financial Market Professionals," IMF Working Papers 08/141, International Monetary Fund.
- Antonio Guarino & Marco Cipriani, 2008. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," WEF Working Papers 0047, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
- Adeline Delavande, 2008.
"Measuring revisions to subjective expectations,"
Journal of Risk and Uncertainty,
Springer, vol. 36(1), pages 43-82, February.
- Richard Mckelvey & Thomas Palfrey, 1998. "Quantal Response Equilibria for Extensive Form Games," Experimental Economics, Springer, vol. 1(1), pages 9-41, June.
- 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.
- Anthony Ziegelmeyer & Christoph March & Sebastian Krügel, 2012. ""Do We Follow Others when We Should? A Simple Test of Rational Expectations": Comment," Jena Economic Research Papers 2012-006, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- R. McKelvey & T. Palfrey, 2010. "Quantal Response Equilibria for Normal Form Games," Levine's Working Paper Archive 510, David K. Levine.
- Christoph March, 2011. "Adaptive social learning," PSE Working Papers halshs-00572528, HAL.
- Christoph March & Anthony Ziegelmeyer, 2009. "Behavioral Social Learning," Jena Economic Research Papers 2009-105, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
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 references are entirely missing, you can add them using this form.