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Fragility of information cascades: an experimental study using elicited beliefs

Published online by Cambridge University Press:  14 March 2025

Anthony Ziegelmeyer ,
Frédéric Koessler ,
Juergen Bracht  and
Eyal Winter
Anthony Ziegelmeyer*
Affiliation:
Strategic Interaction Group, Max Planck Institute of Economics, Jena, Germany Faculty of Economics and Management, Technical University of Berlin, Berlin, Germany
Frédéric Koessler*
Affiliation:
Paris School of Economics and CNRS, Paris, France
Juergen Bracht*
Affiliation:
University of Aberdeen Business School, University of Aberdeen, Aberdeen, Scotland, UK
Eyal Winter*
Affiliation:
Department of Economics and Center for the Study of Rationality, Hebrew University of Jerusalem, Jerusalem, Israel
*
e-mail: ziegelmeyer@econ.mpg.de
e-mail: koessler@pse.ens.fr
e-mail: juergen.bracht@abdn.ac.uk
e-mail: mseyal@mscc.huji.ac.il
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Abstract

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This paper examines the occurrence and fragility of information cascades in two laboratory experiments. One group of low informed participants sequentially guess which of two states has been randomly chosen. In a matched pairs design, another group of high informed participants make similar guesses after having observed the guesses of the low informed participants. In the second experiment, participants’ beliefs about the chosen state are elicited. In equilibrium, low informed players who observe an established pattern of identical guesses herd without regard to their private information whereas high informed players always guess according to their private information. Equilibrium behavior implies that information cascades emerge in the group of low informed participants, the belief based solely on cascade guesses is stationary, and information cascades are systematically broken by high informed participants endowed with private information contradicting the cascade guesses. Experimental results show that the behavior of low informed participants is qualitatively in line with the equilibrium prediction. Information cascades often emerge in our experiments. The tendency of low informed participants to engage in cascade behavior increases with the number of identical guesses. Our main finding is that information cascades are not fragile. The behavior of high informed participants differs markedly from the equilibrium prediction. Only one-third of laboratory cascades are broken by high informed participants endowed with private information contradicting the cascade guesses. The relative frequency of cascade breaks is 15% for the situations where five or more identical guesses are observed. Participants’ elicited beliefs are strongly consistent with their own behavior and show that, unlike in equilibrium, the more cascade guesses participants observe the more they believe in the state favored by those guesses.

Keywords

Information cascadesFragilityElicited beliefsDepth-of-reasoning analysisExperimental economics

JEL classification

C92: Laboratory, Group Behavior C72: Noncooperative Games D82: Asymmetric and Private Information • Mechanism Design
Type
Research Article
Information
Experimental Economics , Volume 13 , Issue 2 , June 2010 , pp. 121 - 145
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NC
This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
Copyright
Copyright © The Author(s) 2009

Footnotes

This paper is a revised version of Chapter V of Ziegelmeyer's dissertation (Ziegelmeyer 2001) which resulted from a collaboration with Frédéric Koessler. It circulated earlier under the title “Behaviors and Beliefs in Information Cascades”.

Electronic supplementary material The online version of this article (http://dx.doi.org/10.1007/s10683-009-9232-x) contains supplementary material, which is available to authorized users.

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