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Information Aggregation with Costly Information and Random Ordering: Experimental Evidence

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  • Kraemer, Carlo

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Nöth, Markus

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Weber, Martin

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

The cost of information is an often ignored factor in economic situations although the information acquisition behavior of the decision makers has a crucial influence on the outcome. In this experiment, we study an information aggregation process in which participants decide in a random sequence. Participants observe predecessors decisions and can acquire additional private information at a fixed price. We analyze participants information acquisition behavior and updating procedures. About one half of the individuals act rationally, whereas the other participants systematically overestimate the private signal value. This leads to excessive signal acquisitions and reduced conformity.

Suggested Citation

  • Kraemer, Carlo & Nöth, Markus & Weber, Martin, 2000. "Information Aggregation with Costly Information and Random Ordering: Experimental Evidence," Sonderforschungsbereich 504 Publications 00-35, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:00-35
    Note: The authors gratefully acknowledge the financial support for this research, which was provided by the Deutsche Forschungsgemeinschaft (grant We993/7-2). Markus Nöth is grateful to the finance department at the Wharton School for their hospitality. Helpful comments were received from Frank Voßmann, Charles Plott, Amnon Rapoport, from participants at the GEW meeting, ESA European Regional meeting in 1999, the 1 st Asian Conference on Experimental Business Research and from seminar participants at the University of Zürich, University of Toulouse and Fuqua Business School.
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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.
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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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