Should I Stay or should I Go? Bandwagons in the lab

Tom-Reiel Heggedal, Leif Helland and Knut-Eric Joslin (knut-eric.n.joslin@bi.no)

Journal of Economic Behavior & Organization, 2018, vol. 150, issue C, 86-97

Abstract: We experimentally investigate the impact of strategic uncertainty and complementarity on leader and follower behavior using the model of Farrell and Saloner (1985). At the core of the model are endogenous timing, irreversible actions and private valuations. We find that strategic complementarity strongly determines follower behavior. Once a subject decides to abandon the status quo the probability that other players jump on the bandwagon increases sharply. However, there is a reluctance to lead when leading is a conditional best response. We explain this deviation from the neo-classical equilibrium by injecting some noise in the equilibrium concept. We also find that cheap talk improves efficiency.

Keywords: Strategic complementarity; Type uncertainty; Endogenous timing; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: D82 L14 L15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:150:y:2018:i:c:p:86-97

DOI: 10.1016/j.jebo.2018.03.019

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