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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
Article

Abstract

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)

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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

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