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Information Aggregation with Random Ordering: Cascades and Overconfidence

Author

Listed:
  • Nöth, Markus

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Weber, Martin

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

In economic models, it is usually assumed that agents aggregate their private and all available public information correctly and completely. In this experiment, we identify subjects' updating procedures and analyze the consequences for the aggregation process. Decisions can be based on private information with known quality and observed decisions of other participants. In this setting with random ordering, information cascades are observable and agents' overconfidence has a positive effect on avoiding a non-revealing aggregation process but it reduces welfare in general.

Suggested Citation

  • Nöth, Markus & Weber, Martin, 2000. "Information Aggregation with Random Ordering: Cascades and Overconfidence," Sonderforschungsbereich 504 Publications 00-34, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:00-34
    Note: The authors gratefully acknowledge the financial support for this research which was provided by the Deutsche Forschungsgemeinschaft (grants No381/1 and We993/7-2). Carlo Kraemer and Tobias Kremer programmed the software for this project. Helpful comments were received from Rachel Croson, Wolfgang Gerke, Charles Holt, Susanne Prantl and participants at the Economic Science Association 1998 meeting, the European Finance Association 1999 meeting and at the Wharton Finance Micro Lunch seminar.
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp00-34.pdf
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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