Signal Qualities, Order of Decisions, and Informational Cascades: Experimental Evidences

This paper reports the results of informational cascades experiments where two different decision-making systems, anti-seniority and seniority are investigated. By implementing heterogeneous signal qualities associated with the fixed order of decisions I compare the property of each system and examine heuristics human subjects use. Major findings are the following: (1) complete cascades occur more frequently in seniority than in anti-seniority, (2) seniority is more e‘cient than anti-seniority, but it increases the risk for creating negative cascades, (3) for both systems, rational complete cascades occur less frequently than those which the Bayesian theory predicts, (4) subjects in seniority put equal weight on private signals and on predecessors' predictions whereas those who in anti-seniority put more weight on private signals than on predecessors' predictions, (5) by analyzing deviations from Bayesian posteriors, both overconfidence and underconfidence are identified, and (6) the anchoring e_ect is vericed in deviations by overconfidence, but is not verified in deviations by underconfidence.

Signal Qualities, Order of Decisions, and Informational Cascades: Experimental Evidence

This experimental study investigates the effect of signal strength on the formation of informational cascades by introducing heterogeneous signal qualities associated with the fixed order of decisions on the two different decision-making systems, anti-seniority and seniority. Major findings include that complete cascades occur more frequently in seniority than in anti-seniority, that seniority is more efficient than anti-seniority, but increases the risk of creating negative cascades, and that private signals can be extracted more effectively in anti-seniority than in seniority. For both treatments, rational complete cascades occur less frequently than those suggested by the Bayesian model. For the heuristic subjects employed, the anchoring effect of private signals is partially identified.anchoring effect

Can You Believe Your Neighbors' Behaviors?

In the theoretical assumption of informational cascades, private signals and predecessors' actions are equivalently informative before informational cascades, but are not once informational cascades have started. This experimental study tests this assumption by measuring the informativeness of private signals and predecessors'' actions for human subjects in and out of informational cascades. We observed that subjects in informational cascades do not extract much information from predecessors'' actions, indicating that they recognize other subjects'' cascading behaviors, that subjects rely more on their private signals than on predecessors'' actions even when both of them are equivalently informative, and that subjects cannot estimate posterior beliefs precisely in a Bayesian way due to cognitive biases such as anchoring and adjustment or conservatism.

Signal qualities, order of decisions, and informational cascades: Experimental evidences

This paper reports the results of informational cascades experiments where two different decision-making systems, anti-seniority and seniority are investigated. By implementing heterogeneous signal qualities associated with the fixed order of decisions I compare the property of each system and examine heuristics human subjects use. Major findings are the following: (1) complete cascades occur more frequently in seniority than in anti-seniority, (2) seniority is more e'cient than anti-seniority, but it increases the risk for creating negative cascades, (3) for both systems, rational complete cascades occur less frequently than those which the Bayesian theory predicts, (4) subjects in seniority put equal weight on private signals and on predecessors' predictions whereas those who in anti-seniority put more weight on private signals than on predecessors' predictions, (5) by analyzing deviations from Bayesian posteriors, both overconfidence and underconfidence are identified, and (6) the anchoring effect is vericed in deviations by overconfidence, but is not verified in deviations by underconfidence

Time Discounting: The Delay Effect and Procrastinating Behavior

The delay effect, that people discount the near future more than the distant future, has not been verified rigorously. An experiment conducted by us in China confirms that, by separating the delay from the interval, the delay effect exists only within a short delay. The results are reliable, because the rewards paid were very large, in order to elicit the subjects' true preferences. The interval and magnitude effects are also confirmed. Finally, subjects' procrastinating behavior, as reported in the questionnaire conducted at the end of the experiment, is explained by the time discount rates and the degree of the delay effect revealed in the experiment.

Experiments on Risk Attitude: The Case of Chinese Students

This paper examines Chinese students' risk attitude using buying and selling experiments with lotteries. We found that subjects were more risk averse in the buying experiment than in the selling experiment, suggesting the endowment effect. In the selling experiment, subjects were risk loving when there was a low win probability and risk averse with a high win probability, whereas they were risk averse in the buying experiment. Using the prize money won during the experiment as a measure of wealth, we found decreasing absolute risk aversion. Subjects' risk attitude as revealed in the experiments explains their risky asset holding behavior.