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On the absorbability of herd behaviour and informational cascades: an experimental analysis

  • Morone, Andrea
  • Fiore, Annamaria
  • Sandri, Serena

A theory is said to be fully absorbable whenever its own acceptance by all of the individuals belonging to a certain population does not question its predictive validity. This accounts for strategic equilibria and can be related to the logic underlying convergence of behaviour and intentional herding in sequential games. This paper discusses the absorbability of informational cascades' theory by bounded rational decision-makers and analyses whether providing individuals with theoretic information on informational cascades affects overall probability of herding phenomena to occur as well as whether an incorrect cascade can be reversed because of bounded rational adapting of the theory's prescriptive.

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Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 15/07.

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Date of creation: 2007
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Handle: RePEc:zbw:tuddps:1507
Contact details of provider: Postal: 01062 Dresden
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  1. Andrea Morone & Serena Sandri & Tobias Uske, 2007. "On the absorbability of the Guessing Game Theory. A Theoretical and Experimental Analysis," series 0017, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Apr 2007.
  2. Daniel Sgroi, 2003. "The Right Choice at the Right Time: A Herding Experiment in Endogenous Time," Experimental Economics, Springer, vol. 6(2), pages 159-180, October.
  3. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
  4. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  5. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," Experimental 0502002, EconWPA.
  6. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  7. Markus Noth & Martin Weber, 2003. "Information Aggregation with Random Ordering: Cascades and Overconfidence," Economic Journal, Royal Economic Society, vol. 113(484), pages 166-189, January.
  8. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December.
  9. Morgenstern, Oskar, 1972. "Descriptive, Predictive and Normative Theory," Kyklos, Wiley Blackwell, vol. 25(4), pages 699-714.
  10. John D. Hey & Andrea Morone, 2004. "Do Markets Drive Out Lemmings-or Vice Versa?," Economica, London School of Economics and Political Science, vol. 71(284), pages 637-659, November.
  11. Huck, Steffen & Oechssler, Jorg, 2000. "Informational cascades in the laboratory: Do they occur for the right reasons?," Journal of Economic Psychology, Elsevier, vol. 21(6), pages 661-671, December.
  12. Angela Hung & Jeff Dominitz, 2004. "Homogeneous Actions and Hetergeneous Beliefs: Experimental Evidence on the Formation of Information Cascades," Econometric Society 2004 North American Winter Meetings 64, Econometric Society.
  13. 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 1109-16, October.
  14. Allsopp, L. & Hey, J.D., 1998. "Two Experiments to Test a Model of Herd Behaviour," Discussion Papers 98-28, Department of Economics, University of Birmingham.
  15. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  16. Andrea Morone, 2005. "Financial Market in the Laboratory, an Experimental Analysis of some Stylized Facts," Papers on Strategic Interaction 2005-27, Max Planck Institute of Economics, Strategic Interaction Group.
  17. Anderson, Lisa R, 2001. "Payoff Effects in Information Cascade Experiments," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 609-15, October.
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