Self-correcting Information Cascades

Jacob Goeree, Thomas Palfrey, Brian Rogers and Richard McKelvey

No 1197, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

Abstract: In laboratory experiments, information cascades are ephemeral phenomena, collapsing soon after they form, and them reforming again. The formation/collapse/reformation cycles occur frequently and repeatedly. Cascades may be reversed (collapse followed by a cascade on a different state) and more often than not, such a reversal is self-correcting: The cascade switches from the incorrect to the correct state. Past experimental work focused on relatively short horizons, where these interesting dynamics are rarely observed. We present experiments with a longer horizon, and also investigate the effect of signal informativeness. We propose a theoretical model, based on quantal response equilibrium, where temporary and self-correcting cascades arise as equilibrium phenomena. The model also predicts the systematic differences we observe experimentally in the dynamics, as a function of signal informativeness. We extend the basic model to include a parameter measuring base rate neglect and find it to be a statistically significant factor in the dynamics, resulting in somewhat faster rates of social learning.

Keywords: social learning; information cascades; laboratory experiments (search for similar items in EconPapers)
Pages: 41 pages
Date: 2004-04
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Related works:
Journal Article: Self-Correcting Information Cascades (2007)
Working Paper: Self-Correcting Information Cascades (2006)
Working Paper: Self-Correcting Information Cascades (2004)
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