Information aggregation with costly information and random ordering: Experimental evidence
The cost of information is an often ignored factor in economic situations, even though the information acquisition behavior of the decision makers has a crucial influence on the outcome. In this experiment, we study an information aggregation process in which subjects decide in a random sequence. Su...
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| Published in | Journal of economic behavior & organization Vol. 59; no. 3; pp. 423 - 432 |
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| Main Authors | , , |
| Format | Journal Article |
| Language | English |
| Published |
Amsterdam
Elsevier B.V
01.03.2006
Elsevier Elsevier Sequoia S.A |
| Series | Journal of Economic Behavior & Organization |
| Subjects | |
| Online Access | Get full text |
| ISSN | 0167-2681 1879-1751 |
| DOI | 10.1016/j.jebo.2004.06.026 |
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| Abstract | The cost of information is an often ignored factor in economic situations, even though the information acquisition behavior of the decision makers has a crucial influence on the outcome. In this experiment, we study an information aggregation process in which subjects decide in a random sequence. Subjects observe predecessors’ decisions and can acquire additional private information at a fixed price. We analyze subjects’ information acquisition behavior and updating procedures. About one half of the individuals act rationally, whereas the other participants systematically overestimate the private signal value. This leads to excessive signal acquisitions and reduced conformity. |
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| AbstractList | The cost of information is an often ignored factor in economic situations, even though the information acquisition behavior of the decision makers has a crucial influence on the outcome. In this experiment, we study an information aggregation process in which subjects decide in a random sequence. Subjects observe predecessors' decisions and can acquire additional private information at a fixed price. We analyze subjects' information acquisition behavior and updating procedures. About one half of the individuals act rationally, whereas the other participants systematically overestimate the private signal value. This leads to excessive signal acquisitions and reduced conformity. [PUBLICATION ABSTRACT] The cost of information is an often ignored factor in economic situations, even though the information acquisition behavior of the decision makers has a crucial influence on the outcome. In this experiment, we study an information aggregation process in which subjects decide in a random sequence. Subjects observe predecessors’ decisions and can acquire additional private information at a fixed price. We analyze subjects’ information acquisition behavior and updating procedures. About one half of the individuals act rationally, whereas the other participants systematically overestimate the private signal value. This leads to excessive signal acquisitions and reduced conformity. |
| Author | Weber, Martin Nöth, Markus Kraemer, Carlo |
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| Cites_doi | 10.1016/S0167-4870(00)00025-8 10.1007/BF01426213 10.1006/game.1995.1023 10.1162/105864001316907964 10.1086/261849 10.1111/0034-6527.00290 10.1111/1468-0297.00091 |
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| Keywords | Information aggregation Bayes’ rule D8 Information acquisition C92 Heuristics |
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| References_xml | – volume: 113 start-page: 166 year: 2003 end-page: 189 ident: bib8 article-title: Information aggregation with random ordering: cascades and overconfidence publication-title: Economic Journal – volume: 71 start-page: 425 year: 2004 end-page: 442 ident: bib5 article-title: Limited depth of reasoning and failure of cascade formation in the laboratory publication-title: Review of Economic Studies – volume: 10 start-page: 301 year: 2001 end-page: 330 ident: bib2 article-title: On the evolution of overconfidence and entrepreneurs publication-title: Journal of Economics and Management Strategy – volume: 21 start-page: 661 year: 2000 end-page: 671 ident: bib4 article-title: Informational cascades in the laboratory: do they occur for the right reasons? publication-title: Journal of Economic Psychology – volume: 87 start-page: 847 year: 1997 end-page: 862 ident: bib1 article-title: Information cascades in the laboratory publication-title: American Economic Review – volume: 10 start-page: 6 year: 1995 end-page: 38 ident: bib6 article-title: Quantal response equilibria for normal- form games publication-title: Games and Economic Behavior – volume: 1 start-page: 9 year: 1998 end-page: 41 ident: bib7 article-title: Quantal response equilibria for extensive-form games publication-title: Experimental Economics – volume: 100 start-page: 992 year: 1992 end-page: 1026 ident: bib3 article-title: A theory of fads, fashion, custom, and cultural change as informational cascades publication-title: Journal of Political Economy – volume: 21 start-page: 661 year: 2000 ident: 10.1016/j.jebo.2004.06.026_bib4 article-title: Informational cascades in the laboratory: do they occur for the right reasons? publication-title: Journal of Economic Psychology doi: 10.1016/S0167-4870(00)00025-8 – volume: 1 start-page: 9 year: 1998 ident: 10.1016/j.jebo.2004.06.026_bib7 article-title: Quantal response equilibria for extensive-form games publication-title: Experimental Economics doi: 10.1007/BF01426213 – volume: 10 start-page: 6 year: 1995 ident: 10.1016/j.jebo.2004.06.026_bib6 article-title: Quantal response equilibria for normal- form games publication-title: Games and Economic Behavior doi: 10.1006/game.1995.1023 – volume: 87 start-page: 847 year: 1997 ident: 10.1016/j.jebo.2004.06.026_bib1 article-title: Information cascades in the laboratory publication-title: American Economic Review – volume: 10 start-page: 301 year: 2001 ident: 10.1016/j.jebo.2004.06.026_bib2 article-title: On the evolution of overconfidence and entrepreneurs publication-title: Journal of Economics and Management Strategy doi: 10.1162/105864001316907964 – volume: 100 start-page: 992 year: 1992 ident: 10.1016/j.jebo.2004.06.026_bib3 article-title: A theory of fads, fashion, custom, and cultural change as informational cascades publication-title: Journal of Political Economy doi: 10.1086/261849 – volume: 71 start-page: 425 year: 2004 ident: 10.1016/j.jebo.2004.06.026_bib5 article-title: Limited depth of reasoning and failure of cascade formation in the laboratory publication-title: Review of Economic Studies doi: 10.1111/0034-6527.00290 – volume: 113 start-page: 166 year: 2003 ident: 10.1016/j.jebo.2004.06.026_bib8 article-title: Information aggregation with random ordering: cascades and overconfidence publication-title: Economic Journal doi: 10.1111/1468-0297.00091 |
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| SubjectTerms | Acquisition Bayes’ rule Conformity Costs Cultural change Decision analysis Decision makers Decision making Economic equilibrium Economic psychology Experiment design Heuristics Information Information acquisition Information aggregation Information management Investment Pay-off Rationality Studies |
| Title | Information aggregation with costly information and random ordering: Experimental evidence |
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