Do Individuals Recognize Cascade Behavior of Others?

Abstract

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al.,1992). Using the BDM (Becker et al., 1964) mechanism we study participants´probability perceptions based on maximum prices for participating in theprediction game. We find increasing maximum prices the more coincidingpredictions of predecessors are observed, regardless of whether additionalinformation is revealed by these predictions. Individual price patterns ofmore than two thirds of the participants indicate that cascade behavior ofpredecessors is not recognized.