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Information aggregation with costly information and random ordering: Experimental evidence

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  • Kraemer, Carlo
  • Noth, Markus
  • Weber, Martin
Abstract
The cost of information is an often ignored factor in economic situations although the information acquisition behavior of the decision makers has a crucial influence on the outcome. In this experiment, we study an information aggregation process in which participants decide in a random sequence. Participants observe predecessors decisions and can acquire additional private information at a fixed price. We analyze participants information acquisition behavior and updating procedures. About one half of the individuals act rationally, whereas the other participants systematically overestimate the private signal value. This leads to excessive signal acquisitions and reduced conformity.
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Suggested Citation

  • Kraemer, Carlo & Noth, Markus & Weber, Martin, 2006. "Information aggregation with costly information and random ordering: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 59(3), pages 423-432, March.
    • Handle: RePEc:eee:jeborg:v:59:y:2006:i:3:p:423-432
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    as
    1. 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.
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    More about this item

    JEL classification:

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

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