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Can You Believe Your Neighbors' Behaviors?

Author

Listed:
  • Shunichiro Sasaki

    (Osaka University)

  • Toshiji Kawagoe

    (Future University - Hakodate)

Abstract

In the theoretical assumption of informational cascades, private signals and predecessors' actions are equivalently informative before informational cascades, but are not once informational cascades have started. This experimental study tests this assumption by measuring the informativeness of private signals and predecessors'' actions for human subjects in and out of informational cascades. We observed that subjects in informational cascades do not extract much information from predecessors'' actions, indicating that they recognize other subjects'' cascading behaviors, that subjects rely more on their private signals than on predecessors'' actions even when both of them are equivalently informative, and that subjects cannot estimate posterior beliefs precisely in a Bayesian way due to cognitive biases such as anchoring and adjustment or conservatism.

Suggested Citation

  • Shunichiro Sasaki & Toshiji Kawagoe, 2006. "Can You Believe Your Neighbors' Behaviors?," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-11.
    • Handle: RePEc:ebl:ecbull:eb-06c90003
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    References listed on IDEAS

    as
    1. Markus Noth & Martin Weber, 2003. "Information Aggregation with Random Ordering: Cascades and Overconfidence," Economic Journal, Royal Economic Society, vol. 113(484), pages 166-189, January.
    2. Angela A. Hung & Charles R. Plott, 2001. "Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions," American Economic Review, American Economic Association, vol. 91(5), pages 1508-1520, December.
    3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    4. Dorothea Kübler & Georg Weizsäcker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 425-441.
    5. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
    6. Bogaçhan Çelen & Shachar Kariv, 2004. "Distinguishing Informational Cascades from Herd Behavior in the Laboratory," American Economic Review, American Economic Association, vol. 94(3), pages 484-498, June.
    7. Angela Hung & Jeff Dominitz, 2004. "Homogeneous Actions and Hetergeneous Beliefs: Experimental Evidence on the Formation of Information Cascades," Econometric Society 2004 North American Winter Meetings 64, Econometric Society.
    8. Yaw Nyarko & Andrew Schotter, 2002. "An Experimental Study of Belief Learning Using Elicited Beliefs," Econometrica, Econometric Society, vol. 70(3), pages 971-1005, May.
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    Cited by:

    1. Shunichiro Sasaki & Toshiji Kawagoe, 2007. "Belief Updating in Individual and Social Learning: A Field Experiment on the Internet," ISER Discussion Paper 0690, Institute of Social and Economic Research, Osaka University.

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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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