Working Paper: CEPR ID: DP5310
Authors: Mathias Drehmann; Jörg Oechssler; Andreas Roider
Abstract: Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experimentally investigate the effects of several different forms of payoff externalities (e.g., network effects, first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation effects (i.e., the influence of success models) in the context of herding.
Keywords: experiment; herding; information cascades; internet; network effects
JEL Codes: C92; D80
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reputation (M14) | decision-making (D70) |
| predecessor's cumulative payoff (C73) | subsequent choices (D87) |
| positive payoff externalities (D62) | longer herding cascades (C92) |
| negative payoff externalities (D62) | shorter herding cascades (C92) |