Do individuals recognize cascade behavior of others? An Experimental Study

Grebe, Tim; Schmid, Julia and Stiehler, Andreas (October 2006): Do individuals recognize cascade behavior of others? An Experimental Study. SFB/TR 15 Discussion Paper No. 180

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.

• Item Type: Paper
• Keywords: information cascades, Bayes' Rule, decision under risk and uncertainty, experimental economics
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A7 - Auktionen, Anreizprobleme und Wettbewerb
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: C91, D81, D82
• Language: English