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Is playing alone in the darkness sufficient to prevent informational cascades?

Author

Listed:
  • Annamaria Fiore

    (DSE, Università di Bari)

  • Andrea Morone

    (DSE, Università di Bari)

Abstract

Models of herd behaviour and informational cascades were theoretically developed in 1992 respectively by Banerjee (A simple model of herd behavior) and Bikhchandani, Hirshleifer and Welch (A Theory of Fads, Fashion, Custom and Cultural Change as Informational Cascades). Both articles pointed out the existence of an information externality that causes a welfare loss, and both proposed the idea that destroying an amount of information may turn out in a social improvement. Although this is an old idea and in the last years many features of herd behaviour and informational cascades were studied, this particular aspect was never developed or extensively analysed. In this article we will try to investigate this hypothesis both theoretically and experimentally.

Suggested Citation

  • Annamaria Fiore & Andrea Morone, 2005. "Is playing alone in the darkness sufficient to prevent informational cascades?," Experimental 0503002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpex:0503002
    Note: Type of Document - pdf; pages: 19
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    References listed on IDEAS

    as
    1. Daniel Sgroi, 2003. "The Right Choice at the Right Time: A Herding Experiment in Endogenous Time," Experimental Economics, Springer;Economic Science Association, vol. 6(2), pages 159-180, October.
    2. Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-1116, October.
    3. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
    4. Sgroi, D., 2004. "Minority Opinion and Herd Behaviour," Cambridge Working Papers in Economics 0421, Faculty of Economics, University of Cambridge.
    5. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-748, September.
    6. Louise Allsopp & John Hey, 2000. "Two Experiments to Test a Model of Herd Behaviour," Experimental Economics, Springer;Economic Science Association, vol. 3(2), pages 121-136, October.
    7. Andrea Morone, 2002. "Financial Market in the Laboratory," Computing in Economics and Finance 2002 151, Society for Computational Economics.
    8. repec:wsi:wschap:9789813235816_0021 is not listed on IDEAS
    9. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
    10. 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.
    11. 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.
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    13. D. Sgroi, 2001. "Controlling the Herd: Applications of Herding Theory," Cambridge Working Papers in Economics 0106, Faculty of Economics, University of Cambridge.
    14. John D. Hey & Andrea Morone, 2018. "Do Markets Drive Out Lemmings—or Vice Versa?," World Scientific Book Chapters,in: Experiments in Economics Decision Making and Markets, chapter 21, pages 467-489 World Scientific Publishing Co. Pte. Ltd..
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    Citations

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    Cited by:

    1. Andrea Morone & Eleni Samanidou, 2008. "A simple note on herd behaviour," Journal of Evolutionary Economics, Springer, vol. 18(5), pages 639-646, October.
      • Andrea Morone & Eleni Samanidou, 2007. "A simple note on Herd Behaviour," SERIES 0013, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2007.
    2. Fiore, Annamaria & Morone, Andrea, 2008. "A Simple Note on Informational Cascades," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-21.
    3. Andrea Morone, 2008. "Financial markets in the laboratory: an experimental analysis of some stylized facts," Quantitative Finance, Taylor & Francis Journals, vol. 8(5), pages 513-532.

    More about this item

    Keywords

    Informational Cascades; Individual Decision Making; Experiments; Information Externality;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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