|
|
|
|
||||
|
||||
Can Fear Cause Economic Collapse? Insights from an Experimental StudyAntonio GuarinoUniversity College London - Department of Economics and ELSE (Centre for Economic Learning and Social Evolution) Steffen HuckUniversity College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA) Thomas D. JeitschkoMichigan State University - Department of Economics July 15, 2003 Abstract: We study the behavior of experimental subjects who have to make a sequence of risky investment decisions in the presence of network externalities. Subjects follow a simple heuristic investing after positive experiences and reducing their propensity to invest after a failure. This result contrasts with the theoretical findings of Jeitschko and Taylor (2001) in which even agents who have only good experiences eventually stop investing because they are afraid that others with worse experiences will quit. In theory, this "Bayesian fear" can trigger sudden economic collapse even in the most efficient Bayesian equilibrium. In the experiment, subjects are surprisingly fearless of others' experiences, and simply follow their own experiences, thus averting a total collapse.
Number of Pages in PDF File: 27 Keywords: Coordination, Coordination Avalanche, Economic Collapse, Experimental Economics, Network Externalities JEL Classification: C7, C9, D8, E0, G0 working papers seriesDate posted: October 22, 2003Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo2 in 0.359 seconds
