Does Cascade Behavior Reflect Bayesian Updating? - An Experimental Study

We examine the explanatory power of cascade models by implementing the BDM-mechanism in a simple cascade experiment in which subject have to decide on the prediction of a randomly choasen urn. Assigned price limits to participate in the prediction game are used as indicators of subjective probabilities. We are thus able to test the explanatory power of thze standard BHW model (Bickchandani, Hirshleifer, Welch, 1992) in comparison to cascade models which incorporate individual decision errors. Focusing on stated price limits corresponding to urn predictions in line with both, standard and error BHW models our data indicate taht the inclusion of errors does not significantly improve the explanatory power of the standard approach.