Do individuals recognize cascade behavior of others? An experimental study

Tim Grebe, Julia Schmid and Andreas Stiehler

No 2006-079, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

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.

Keywords: information cascade; Bayes' Rule; decision under risk and uncertainty; experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D81 D82 (search for similar items in EconPapers)
Date: 2006
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