IDEAS home Printed from https://ideas.repec.org/p/uts/ecowps/27.html
   My bibliography  Save this paper

Interacting Information Cascades: On the Movement of Conventions Between Groups

Author

Listed:

Abstract

When a decision maker is a member of multiple social groups, her actions may cause information to spill overfrom one group to another. We study the nature of these spillovers in an observational learning game where two groups interact via a common player, and where conventions emerge when players follow the decisions of the members of their own groups rather than their own private information. We show that: (i) if a convention develops in one group but not the other group, then the convention spills over via the common player; (ii) when conventions disagree, then the common players decision breaks the convention in one group; and (iii) when no conventions have developed, then the common players decision triggers conventions on the same action in both groups. We also nd that information spillovers may reduce welfare.

Suggested Citation

  • James C.D. Fisher & John Wooders, 2015. "Interacting Information Cascades: On the Movement of Conventions Between Groups," Working Paper Series 27, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
  • Handle: RePEc:uts:ecowps:27
    as

    Download full text from publisher

    File URL: http://www.uts.edu.au/sites/default/files/Interacting01162015web.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1403-1426, December.
    2. Antonio Guarino & Philippe Jehiel, 2013. "Social Learning with Coarse Inference," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 147-174, February.
    3. Cipriani Marco & Guarino Antonio, 2008. "Herd Behavior and Contagion in Financial Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-56, October.
    4. Wu, Jiemai, 2015. "Helpful laymen in informational cascades," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 407-415.
    5. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
    6. Jacob K. Goeree & Thomas R. Palfrey & Brian W. Rogers & Richard D. McKelvey, 2007. "Self-Correcting Information Cascades," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 733-762.
    7. Huberto M. Ennis & Todd Keister, 2016. "Optimal banking contracts and financial fragility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(2), pages 335-363, February.
    8. 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.
    9. Antonio Jiménez-Martínez, 2015. "A model of belief influence in large social networks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(1), pages 21-59, May.
    10. Boğaçhan Çelen & Shachar Kariv, 2005. "An experimental test of observational learning under imperfect information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 677-699, October.
    11. S. Ali & Navin Kartik, 2012. "Herding with collective preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(3), pages 601-626, November.
    12. Daron Acemoglu & Munther A. Dahleh & Ilan Lobel & Asuman Ozdaglar, 2011. "Bayesian Learning in Social Networks," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1201-1236.
    13. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    14. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
    15. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-877, October.
    16. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
    17. Guarino, Antonio & Harmgart, Heike & Huck, Steffen, 2011. "Aggregate information cascades," Games and Economic Behavior, Elsevier, vol. 73(1), pages 167-185, September.
    18. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    19. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
    20. Callander, Steven & Hörner, Johannes, 2009. "The wisdom of the minority," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1421-1439.2, July.
    21. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
    22. Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
    23. Cao, H. Henry & Han, Bing & Hirshleifer, David, 2011. "Taking the road less traveled by: Does conversation eradicate pernicious cascades?," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1418-1436, July.
    24. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
    25. Hongbin Cai & Yuyu Chen & Hanming Fang, 2009. "Observational Learning: Evidence from a Randomized Natural Field Experiment," American Economic Review, American Economic Association, vol. 99(3), pages 864-882, June.
    26. Mueller-Frank, Manuel, 2013. "A general framework for rational learning in social networks," Theoretical Economics, Econometric Society, vol. 8(1), January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uts:ecowps:27. 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: (Duncan Ford). General contact details of provider: http://edirc.repec.org/data/edutsau.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.