Working Paper: CEPR ID: DP18461
Authors: Elisa Cavatorta; Antonio Guarino; Steffen Huck
Abstract: In our information cascade experiments, we study social learning in decision- making situations in which decisions “not to do” are unobservable. Subjects, in sequence, choose whether to invest or not, without knowing their position. They observe a private signal and the number of investments made by their predecessors, but not how many predecessors have chosen not to invest. We find that down cas- cades, in which agents neglect the signal and do not invest, occur, in contrast with the equilibrium predictions. Up cascades, in which agents invest independently of the signal, occur, but less than in equilibrium.
Keywords: social learning; informational cascades; asymmetric information; laboratory experiments
JEL Codes: D82; C92
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of observed investments (G31) | down cascades (C69) |
| up cascades (Y10) | lower frequency of investment despite negative private signals (G40) |
| overall investment frequencies (G31) | lower than 50% (C29) |
| down cascades (C69) | agents refrain from investing (G24) |
| aggregate number of investments (E22) | up cascades (Y10) |