Herding with and Without Payoff Externalities - an Internet Experiment

29 Pages Posted: 30 Dec 2005

See all articles by Mathias Drehmann

Mathias Drehmann

Bank for International Settlements (BIS)

Joerg Oechssler

University of Heidelberg - Alfred Weber Institute for Economics

Andreas Roider

University of Regensburg - Department of Economics and Econometrics; IZA Institute of Labor Economics

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Date Written: October 2005

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: Information cascades, herding, network effects, experiment, internet

JEL Classification: C92, D8

Suggested Citation

Drehmann, Mathias and Oechssler, Joerg and Roider, Andreas, Herding with and Without Payoff Externalities - an Internet Experiment (October 2005). CEPR Discussion Paper No. 5310, Available at SSRN: https://ssrn.com/abstract=872863

Mathias Drehmann (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Joerg Oechssler

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany
+49 6221 54 3548 (Phone)
+49 6221 54 3630 (Fax)

HOME PAGE: http://www.awi.uni-heidelberg.de/with2/theorie2/Team/Oechssler/Oechssler_main.html

Andreas Roider

University of Regensburg - Department of Economics and Econometrics ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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