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Self-Correcting Information Cascades

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  • Jacob Goeree
  • Thomas Palfrey
  • Brian Rogers

Abstract

In laboratory experiments, information cascades are ephemeral phenomena, collapsing soon after they form, and them reforming again. The formation/collapse/reformation cycles occur frequently and repeatedly. Cascades may be reversed (collapse followed by a cascade on a different state) and more often than not, such a reversal is self-correcting: The cascade switches from the incorrect to the correct state. Past experimental work focused on relatively short horizons, where these interesting dynamics are rarely observed. We present experiments with a longer horizon, and also investigate the effect of signal informativeness. We propose a theoretical model, based on quantal response equilibrium, where temporary and self-correcting cascades arise as equilibrium phenomena. The model also predicts the systematic differences we observe experimentally in the dynamics, as a function of signal informativeness. We extend the basic model to include a parameter measuring base rate neglect and find it to be a statistically significant factor in the dynamics, resulting in somewhat faster rates of social learning.
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Suggested Citation

  • Jacob Goeree & Thomas Palfrey & Brian Rogers, 2004. "Self-Correcting Information Cascades," Levine's Bibliography 122247000000000153, UCLA Department of Economics.
    • Handle: RePEc:cla:levrem:122247000000000153
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    References listed on IDEAS

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