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Self-Correcting Information Cascades

Goeree, Jacob K. and Palfrey, Thomas R. and Rogers, Brian W. and McKelvey, Richard D. (2007) Self-Correcting Information Cascades. Review of Economic Studies, 74 (3). pp. 733-762. ISSN 0034-6527. doi:10.1111/j.1467-937X.2007.00438.x. https://resolver.caltech.edu/CaltechAUTHORS:20160303-144825827

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Abstract

We report experimental results from long sequences of decisions in environments that are theoretically prone to severe information cascades. Observed behaviour is much different—information cascades are ephemeral. We study the implications of a theoretical model based on quantal response equilibrium, in which the observed cascade formation/collapse/formation cycles arise as equilibrium phenomena. Consecutive cascades may reverse states, and usually such a reversal is self-correcting: the cascade switches to the correct state. These implications are supported by the data. We extend the model to allow for base rate neglect and find strong evidence for overweighting of private information. The estimated belief trajectories indicate fast and efficient learning dynamics.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1111/j.1467-937X.2007.00438.xDOIArticle
http://restud.oxfordjournals.org/content/74/3/733.abstractPublisherArticle
http://restud.oxfordjournals.org/content/74/3/733/suppl/DCSupplementariesPublisherSupplementary Information
http://www.jstor.org/stable/4626159 JSTORarticle
ORCID:
AuthorORCID
Goeree, Jacob K.0000-0001-9876-3425
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:© 2007 The Review of Economic Studies Limited. Received December 1, 2004. Accepted August 1, 2006. Acknowledgements. Financial support from the National Science Foundation (SES-0551014 and SES-0079301) and the Alfred P. Sloan Foundation is gratefully acknowledged. The theory and experimental design was partially completed, and pilot experiments were conducted in collaboration with Richard McKelvey, who died in April 2002. He is not responsible for any errors in the paper. We acknowledge helpful comments from Bo˘gacen Çelen, Terry Sovinsky, three anonymous referees, the managing editor, seminar participants at GREQAM, Harvard University, Johns Hopkins University, NYU, Penn State University, Princeton University, UCLA, Universitat Autonoma de Barcelona, University of Edinburgh, Washington University, the 2003 annual meeting of ESA in Pittsburgh, the 2003 Malaga Workshop on Social Choice and Welfare Economics, the 2003 SAET meetings in Rhodos, the 2003 ESSET meetings in Gerzensee, the 2004 PIER conference on Political Economy, and the 2004 Summer Festival on Game Theory at Stony Brook.
Funders:
Funding AgencyGrant Number
NSFSES-0551014
NSFSES-0079301
Alfred P. Sloan FoundationUNSPECIFIED
Issue or Number:3
Classification Code:JEL: D83
DOI:10.1111/j.1467-937X.2007.00438.x
Record Number:CaltechAUTHORS:20160303-144825827
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20160303-144825827
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:65034
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:28 Mar 2016 22:45
Last Modified:10 Nov 2021 23:38

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