Information Cascades in the Laboratory

Posted: 18 May 1998

See all articles by Lisa R. Anderson

Lisa R. Anderson

College of William and Mary - Department of Economics

Charles A. Holt

University of Virginia - Department of Economics

Abstract

When a series of individuals with private information announce public predictions, initial conformity can create an "information cascade" in which later predictions match the early announcements. This paper reports an experiment in which private signals are drawn from an unobserved urn. Subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws. If initial decisions coincide, then it is rational for subsequent decision makers to follow the established pattern, regardless of their private information. Rational cascades formed in most periods in which such an imbalance occurred.

JEL Classification: C92, D8

Suggested Citation

Anderson, Lisa R. and Holt, Charles A., Information Cascades in the Laboratory. Available at SSRN: https://ssrn.com/abstract=89208

Lisa R. Anderson

College of William and Mary - Department of Economics ( email )

Williamsburg, VA 23187-8795
United States

Charles A. Holt (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Rouss Hall #114
Charlottesville, VA 22904-4182
United States
(804) 924-7894 (Phone)

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