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The Right Choice at the Right Time: A Herding Experiment in Endogenous Time

Published online by Cambridge University Press:  14 March 2025

Daniel Sgroi
Daniel Sgroi*
Affiliation:
Churchill College & Department of Applied Economics, University of Cambridge, Cambridge, CB3 9DE, UK
*
email: [email protected]
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Abstract

Herding describes the phenomenon in decision-making where an economic agent disregards his own private information to follow the actions of his predecessors as in Banerjee (1992). With later decision-makers simply copying earlier decisions their private information cannot be inferred by other decision-makers and will be forever lost. There is some experimental evidence on simple sequential herding of this type in the literature, notably Anderson and Holt (1997). This paper differs by allowing subjects to delay their decision-making in order to benefit from observing others’ actions as in more recent herding models such as Chamley and Gale (1994). The results in this paper suggest that subjects will indeed delay when their private information is not sufficiently strong. Despite this ability to wait, as predicted in the theoretical literature, cascades remained ubiquitous and more worrying still, reverse-cascades occurred in which incorrect decisions made by early decision-makers produced informational cascades on the wrong action. In an alternative design, informing subjects that they had made incorrect choices only made matters worse as subjects moved further away from rational behavior.

Keywords

learningherdingdelay

JEL classification

C91: Laboratory, Individual Behavior D83: Search • Learning • Information and Knowledge • Communication • Belief • Unawareness D82: Asymmetric and Private Information • Mechanism Design
Type
Research Article
Information
Experimental Economics , Volume 6 , Issue 2 , October 2003 , pp. 159 - 180
Copyright
Copyright © 2003 Economic Science Association

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