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Investigating the effect of changes in Signals, Noise and Agent Types in Cascade Models

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Listed:
  • Debra Smarkusky
  • Margo Bergman

Abstract

Smith and Sørenson (2002) depart from Bikhchandani, Hirshleifer and Welsh’s (1999) herding framework in three ways; non-discrete signals, noise and multiple rational agent types. They refer to the standard model of a single type with no noise as a “herding†model, and differentiate themselves by referring to the more general model as a “cascade.†They find that differing preferences lead to “confounded learning†whereby an incorrect equilibrium can arise regardless of the accuracy of the signal space, due to alternate actions taken due to preferences. In this paper we break down the three alterations from the BHW (1999) model, and analyze through agent based techniques the effect that each one has on the outcome, in an effort to determine which of the three different specifications has the greatest impact on herding and learning in the cascade model.

Suggested Citation

  • Debra Smarkusky & Margo Bergman, 2005. "Investigating the effect of changes in Signals, Noise and Agent Types in Cascade Models," Computing in Economics and Finance 2005 296, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:296
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    More about this item

    Keywords

    Herding; Agent-Based Modeling;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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