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Voluntary contributions in cascades: The tragedy of ill-informed leadership

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  • Béatrice BOULU-RESHEF

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  • Nina RAPOPORT

Abstract

Voluntary contributions are often solicited in sequential and public settings where information on the quality of the fundraising project unfolds with the sequence of decisions. This paper examines how the different sources of information available to potential donors in such settings influence their decision-making. Contrary to most of the leadership literature, neither leaders nor followers in these settings have certainty about the quality of the fundraising project. We explore whether leaders remain influential, the extent to which they use their influence strategically, and the consequences on followers when leaders are misinformed. We combine an information cascade method with a modified public goods game to create a "Voluntary Contributions in Cascades" paradigm. Participants sequentially receive private signals about the state of the world, which determines the potential returns from the public good, and take two public actions: an incentivized prediction about the state of the world and a contribution to the public good. We find that participants' predictions mostly align with Bayesian predictions, and find no evidence for strategic or misleading predictions. Leaders' contributions are positively correlated with followers', suggesting they remain influential despite their limited informational advantage. This influence takes a tragic turn when leaders happen to be misinformed, as most misinformed leaders end up unintentionally misleading followers. We find that having a misleading leader is associated with a reduction in gains from contributions roughly twice as large as the reduction that stems from dividing the marginal-per-capita-return by two. Our results stress the significance of having well-informed leaders.
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Suggested Citation

  • Béatrice BOULU-RESHEF & Nina RAPOPORT, 2020. "Voluntary contributions in cascades: The tragedy of ill-informed leadership," LEO Working Papers / DR LEO 2825, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
  • Handle: RePEc:leo:wpaper:2825
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    References listed on IDEAS

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    More about this item

    Keywords

    ; voluntary contribution; information cascade; fundraising; sequential public good game; leadership;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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