Do Individuals Recognize Cascade Behavior of Others? --An Experimental Study--

Andreas Stiehler

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: In a cascade experiment subjects are confronted with artificial predecessors predicting in line with the BHW model (Bikhchandani, Hirshleifer and Welch, 1992). Using the BDM mechanism we study subjects' probability assignments based on price limits for participating in the prediction game. We find increasing price limits the more coinciding predictions of predecessors are observed and regardless of whether additional information is actually revealed by predecessors' predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.

Keywords: information cascades; Bayes' rule; decisions under risk and uncertainty; experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D81 D82 (search for similar items in EconPapers)

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