Experimental Economics

, Volume 13, Issue 2, pp 121–145 | Cite as

Fragility of information cascades: an experimental study using elicited beliefs

  • Anthony ZiegelmeyerEmail author
  • Frédéric Koessler
  • Juergen Bracht
  • Eyal Winter
Open Access


This paper examines the occurrence and fragility of information cascades in two laboratory experiments. One group of low informed participants sequentially guess which of two states has been randomly chosen. In a matched pairs design, another group of high informed participants make similar guesses after having observed the guesses of the low informed participants. In the second experiment, participants’ beliefs about the chosen state are elicited. In equilibrium, low informed players who observe an established pattern of identical guesses herd without regard to their private information whereas high informed players always guess according to their private information. Equilibrium behavior implies that information cascades emerge in the group of low informed participants, the belief based solely on cascade guesses is stationary, and information cascades are systematically broken by high informed participants endowed with private information contradicting the cascade guesses. Experimental results show that the behavior of low informed participants is qualitatively in line with the equilibrium prediction. Information cascades often emerge in our experiments. The tendency of low informed participants to engage in cascade behavior increases with the number of identical guesses. Our main finding is that information cascades are not fragile. The behavior of high informed participants differs markedly from the equilibrium prediction. Only one-third of laboratory cascades are broken by high informed participants endowed with private information contradicting the cascade guesses. The relative frequency of cascade breaks is 15% for the situations where five or more identical guesses are observed. Participants’ elicited beliefs are strongly consistent with their own behavior and show that, unlike in equilibrium, the more cascade guesses participants observe the more they believe in the state favored by those guesses.

Information cascades Fragility Elicited beliefs Depth-of-reasoning analysis Experimental economics 

JEL Classification

C72 C92 D82 

Supplementary material

10683_2009_9232_MOESM1_ESM.pdf (90 kb)
Below is the link to the electronic supplementary material. (PDF 91 KB)


  1. Acemoglu, D., Dahleh, M., Lobel, I., & Ozdaglar, A. (2008). Bayesian learning in social networks (Working Paper 2780). mIT LIDS. Google Scholar
  2. Alevy, J., Haigh, M., & List, J. (2007). Information cascades: Evidence from a field experiment with financial market professionals. Journal of Finance, 62, 151–180. CrossRefGoogle Scholar
  3. Anderson, L. (2001). Payoff effects in information cascade experiments. Economic Inquiry, 39, 609–615. CrossRefGoogle Scholar
  4. Anderson, L., & Holt, C. (1997). Information cascades in the laboratory. American Economic Review, 87, 847–862. Google Scholar
  5. Banerjee, A. (1992). A simple model of herd behavior. Quarterly Journal of Economics, 107, 797–818. CrossRefGoogle Scholar
  6. Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100, 992–1026. CrossRefGoogle Scholar
  7. Blanco, M., Engelmann, D., Koch, A. K., & Normann, H. T. (2008). Belief elicitation in experiments: Is there a hedging problem? (iZA DP No. 3517). Google Scholar
  8. Celen, B., & Kariv, S. (2004). Distinguishing informational cascades from herd behavior in the laboratory. American Economic Review, 94, 484–497. CrossRefGoogle Scholar
  9. Chamley, C. P. (2004). Rational herds: Economic models of social learning. Cambridge: Cambridge University Press. Google Scholar
  10. Cipriani, M., & Guarino, A. (2005). Herd behavior in a laboratory financial market. American Economic Review, 95, 1427–1443. CrossRefGoogle Scholar
  11. Drehmann, M., Oechssler, J., & Roider, A. (2005). Herding and contrarian behavior in financial markets: An Internet experiment. American Economic Review, 95, 1403–1426. CrossRefGoogle Scholar
  12. Eyster, E., & Rabin, M. (2009). Rational and naive herding (cEPR Discussion Paper 7351). London: Centre for Economic Policy Research. Google Scholar
  13. Goeree, J., Palfrey, T., Rogers, B., & McKelvey, R. (2007). Self-correcting information cascades. Review of Economic Studies, 74, 733–762. CrossRefGoogle Scholar
  14. Guarino, A., & Jehiel, P. (2009). Social learning with coarse inference (Mimeo). Google Scholar
  15. Haile, P., Hortacsu, A., & Kosenok, G. (2008). On the empirical content of quantal response equilibrium. American Economic Review, 98, 180–200. CrossRefGoogle Scholar
  16. Huck, S., & Oechssler, J. (2000). Informational cascades in the laboratory: Do they occur for the right reasons? Journal of Economic Psychology, 21, 661–671. CrossRefGoogle Scholar
  17. Hung, A., & Plott, C. (2001). Information cascades: Replication and an extension to majority rule and conformity rewarding institutions. American Economic Review, 91, 1508–1520. CrossRefGoogle Scholar
  18. Koessler, F., & Ziegelmeyer, A. (2000). Tie-breaking rules and informational cascades: a note (Working Paper BETA 2000-09). Université Louis Pasteur, Strasbourg. Google Scholar
  19. Kraemer, C., Nöth, M., & Weber, M. (2006). Information aggregation with costly information and random ordering: Experimental evidence. Journal of Economic Behavior & Organization, 59, 423–432. CrossRefGoogle Scholar
  20. Kübler, D., & Weizsäcker, G. (2004). Limited depth of reasoning and failure of cascade formation in the laboratory. Review of Economic Studies, 71, 425–441. CrossRefGoogle Scholar
  21. Kübler, D., & Weizsäcker, G. (2005). Are longer cascades more stable? Journal of the European Economic Association, 3, 330–339. (Papers and Proceedings). Google Scholar
  22. March, C., & Ziegelmeyer, A. (2009). Behavioral social learning (Mimeo). Google Scholar
  23. McKelvey, R., & Palfrey, T. (1995). Quantal response equilibria for normal form games. Games and Economic Behavior, 10, 6–38. CrossRefGoogle Scholar
  24. McKelvey, R., & Palfrey, T. (1998). Quantal response equilibria for extensive form games. Experimental Economics, 1, 9–41. Google Scholar
  25. Murphy, A., & Winkler, R. (1970). Scoring rules in probability assessment and evaluation. Acta Psychologica, 34, 273–286. CrossRefGoogle Scholar
  26. Nöth, M., & Weber, M. (2003). Information aggregation with random ordering: Cascades and overconfidence. Economic Journal, 113, 166–189. CrossRefGoogle Scholar
  27. Nyarko, Y., & Schotter, A. (2002). An experimental study of belief learning using elicited beliefs. Econometrica, 70, 971–1005. CrossRefGoogle Scholar
  28. Offerman, T., Sonnemans, J., van de Kuilen, G., & Wakker, P. (2009). A truth-serum for non-bayesians: Correcting proper scoring rules for risk attitudes. Review of Economic Studies, 76, 1461–1489. CrossRefGoogle Scholar
  29. Siegel, S., & Castellan, N. J. (1988). Nonparametric statistics for the behavioral sciences. New York: McGraw-Hill. Google Scholar
  30. Smith, L., & Sorensen, P. (2000). Pathological outcomes of observational learning. Econometrica, 68, 371–398. CrossRefGoogle Scholar
  31. Weizsäcker, G. (2008, forthcoming). Do we follow others when we should? A simple test of rational expectations. American Economic Review. Google Scholar
  32. Ziegelmeyer, A. (2001). Informational externalities and sequential interactions: experimental evidence on social learning. Unpublished Ph.D. thesis. Louis Pasteur University, Strasbourg. Google Scholar

Copyright information

© The Author(s) 2009

Authors and Affiliations

  • Anthony Ziegelmeyer
    • 1
    • 2
    Email author
  • Frédéric Koessler
    • 3
  • Juergen Bracht
    • 4
  • Eyal Winter
    • 5
  1. 1.Strategic Interaction GroupMax Planck Institute of EconomicsJenaGermany
  2. 2.Faculty of Economics and ManagementTechnical University of BerlinBerlinGermany
  3. 3.Paris School of Economics and CNRSParisFrance
  4. 4.University of Aberdeen Business SchoolUniversity of AberdeenAberdeenScotland, UK
  5. 5.Department of Economics and Center for the Study of RationalityHebrew University of JerusalemJerusalemIsrael

Personalised recommendations