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Do individuals recognize cascade behavior of others? An Experimental Study

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  • Grebe, Tim
  • Schmid, Julia
  • Stiehler, Andreas

Abstract

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al., 1992). Using the BDM (Becker et al., 1964) mechanism we study participants' probability perceptions based on maximum prices for participating in the prediction game. We find increasing maximum prices the more coinciding predictions of predecessors are observed, regardless of whether additional information is revealed by these predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.

Suggested Citation

  • Grebe, Tim & Schmid, Julia & Stiehler, Andreas, 2006. "Do individuals recognize cascade behavior of others? An Experimental Study," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 180, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:180
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    4. Ron W. NIELSEN, 2016. "Mathematical Analysis of Historical Income Per Capita Distributions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 300-319, June.
    5. March, Christoph, 2019. "The behavioral economics of artificial intelligence: Lessons from experiments with computer players," BERG Working Paper Series 154, Bamberg University, Bamberg Economic Research Group.
    6. Ron W. NIELSEN, 2016. "The Unresolved Mystery of the Great Divergence is Solved," Journal of Economic and Social Thought, KSP Journals, vol. 3(2), pages 196-219, June.
    7. 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 2340-2360, December.
    8. Van Parys, Jessica & Ash, Elliott, 2018. "Sequential decision-making with group identity," Journal of Economic Psychology, Elsevier, vol. 69(C), pages 1-18.
    9. Ge, Xin & Messinger, Paul R. & Li, Jin, 2009. "Influence of Soldout Products on Consumer Choice," Journal of Retailing, Elsevier, vol. 85(3), pages 274-287.
    10. Brzezicka, Justyna & Wisniewski, Radoslaw & Figurska, Marta, 2018. "Disequilibrium in the real estate market: Evidence from Poland," Land Use Policy, Elsevier, vol. 78(C), pages 515-531.
    11. Bohren, Aislinn & Hauser, Daniel, 2017. "Learning with Heterogeneous Misspecified Models: Characterization and Robustness," CEPR Discussion Papers 12036, C.E.P.R. Discussion Papers.
    12. Aislinn Bohren & Daniel Hauser, 2018. "Social Learning with Model Misspeciification: A Framework and a Robustness Result," PIER Working Paper Archive 18-017, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Jul 2018.
    13. Ron W. NIELSEN, 2016. "Scientifically Unacceptable Established Knowledge in Demography and in Economic Research," Journal of Economics Library, KSP Journals, vol. 3(3), pages 429-457, September.

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    More about this item

    Keywords

    information cascades; Bayes' Rule; decision under risk and uncertainty; experimental economics;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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