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Wise crowds or wise minorities?

Author

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  • Christoph Brunner
  • Jacob K. Goeree

Abstract

This paper reports results from social learning experiments where subjects choose between two options and each subject has a small chance of being perfectly informed about which option is correct. In treatment "sequence", subjects observe the entire sequence of predecessors' choices while in treatment "no-sequence" they only observe the number of times each option has been chosen. The theoretical predictions are that subjects follow their immediate predecessors in treatment sequence and follow the minority in treatment no-sequence (Callander and H�rner, 2009). The former prediction is borne out in the data, but subjects tend to follow the majority in treatment no-sequence. We observe substantial heterogeneity in levels of strategic thinking, as predicted by level-k and Cognitive Hierarchy. While these models reproduce some features of our data, their fit is poor because of the assumed best-response behavior. Allowing for some degree of "trembling" improves the fit significantly, especially if subjects are aware that others tremble, as in logit-QRE. The "noisy introspection" model proposed by Goeree and Holt (2004), which combines different levels of thinking with error-prone behavior, best describes the data.

Suggested Citation

  • Christoph Brunner & Jacob K. Goeree, 2009. "Wise crowds or wise minorities?," IEW - Working Papers 439, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:439
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    File URL: https://www.zora.uzh.ch/id/eprint/51891/1/iewwp439.pdf
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    References listed on IDEAS

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    2. Drehmann, Mathias & Oechssler, Jorg & Roider, Andreas, 2007. "Herding with and without payoff externalities -- an internet experiment," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 391-415, April.
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    Cited by:

    1. Asen Ivanov & Dan Levin & James Peck, 2009. "Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values," American Economic Review, American Economic Association, vol. 99(4), pages 1484-1507, September.

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    More about this item

    Keywords

    Social learning; experiments; quantal response equilibrium; level-k models; noisy introspection;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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