Information Cascade Experiment: Introduction

This program sets up a social learning game in which each person obtains a private signal about which of two events has occured ("Red" or "Blue") and must make a public prediction of the event. Predictions are made in sequence, with each person being able to observe the predictions but not the signals of those who preceded in the sequence. Earnings are higher if one's prediction turns out to be correct. This setup allows "information cascades" in which an individual may make a prediction that contradicts their own private signal, which is optimal if the information content of prior predictions exceeds that of one's own signal. See Anderson and Holt (1997) "Information Cascades in the Laboratory," American Economic Review, 847-862. The experiment can be used to illustrate the difference between rational and irrational "herding."

Vecon Lab - December 4, 2023