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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," SFB 649 Discussion Papers 2006-079, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2006-079
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    References listed on IDEAS

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    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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