Abstract
Our research addresses the effect of shared vs. mixed group identities in an information cascade game. We vary whether subjects always choose after a decision maker who shares the same identity or after a decision maker with a different identity. We find that subjects’ inclination to follow their predecessor is stronger in groups uniquely consisting of ingroup members compared to mixed groups. We relate this result to recent social cognition research.
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Notes
See Bannerjee (1992) and Bikchandani et al. (1992) for theory, and Huck and Oechssler (2000), Hung and Plott (2001), Çelen and Kariv (2004), Kübler and Weizsäcker (2004), Drehmann et al. (2005), Kübler and Weizsäcker (2005), Dominitz and Hung (2009), and Fahr and Irlenbusch (2011) for laboratory evidence.
They conduct a standard double auction laboratory experiment varying the ethnic composition of the market participants. They do so both in Southeast Asia and in North America, areas with distinct and non-overlapping ethnic groups, using subjects with training in finance or business. They compare ethnically homogenous (only participants from the dominant ethnicity) and heterogeneous (at least one member of the ethnic minority) markets of six subjects and observe that homogeneity is associated with more bubble building.
In related research, Le Coq et al. (2015) suggest that a common identity changes not only altruistic preferences but also people’s perceived ability to anticipate others’ behavior in a centipede and a coordination game.
Accordingly, we find that the variance of choices is much higher in the mixed-identity treatment, where variance is measured by a variable with four values: 0 = all chose the same color, 1 = one chooses the one and five the other color, 2 = two choose the one and four the other color, 3 = each color is chosen by three decision makers (pMWU = 0.03, two-tailed).
This effect may be reinforced by the uncertainty in our financial decision-making context, as here the credibility of social information is a key determinant of behavior (Mussweiler and Posten 2012).
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Acknowledgements
We thank Kevin Breuer for excellent help in programing and running the experiment, Mattia Nardotto and Peter Werner for statistical advice, participants of the workshop of the Research Unit “Design and Behavior” 2012 and 2013, and seminar participants at the University of Cologne for valuable comments. Financial support by the Deutsche Forschungsgemeinschaft is gratefully acknowledged by all authors through support of the Research Unit “Design and Behavior: Economic Engineering of Firms and Markets” (FOR 1371), by Berger through the research scholarship program (LO 1826/1-1), and by Ockenfels through the Leibniz-Program of the Deutsche Forschungsgemeinschaft.
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Berger, S., Feldhaus, C. & Ockenfels, A. A shared identity promotes herding in an information cascade game. J Econ Sci Assoc 4, 63–72 (2018). https://doi.org/10.1007/s40881-018-0050-9
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DOI: https://doi.org/10.1007/s40881-018-0050-9