Does Cascade Behavior in Information Cascades Reflect Bayesian Updating? - An Experimental Study

Updating behavior in cascade experiments is usually investigated onthe basis of urn prediction. But urn predictions alone can only providea very rough information on individual updating behavior. Therefore, weimplement a Becker, DeGroot, Marschak (BDM) mechanism. Subjects haveto submit maximum prices that they are willing to pay to participate in theprediction game. This enables us to study subjects’ probabilty formationless crudely. The results show that in many situations herding occurs inaccordance with the standard cascade model by Bikhchandani, Hirshleiferand Welch (1992) but cannot be explained neither by rational Bayesianupdating nor by heuristics identi…ed in former cascade experiments.