NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Information Cascades: Evidence from An Experiment with Financial Market Professionals

Jonathan E. Alevy, Michael S. Haigh, John List

NBER Working Paper No. 12767
Issued in December 2006
NBER Program(s):   AP

Previous empirical studies of information cascades use either naturally occurring data or laboratory experiments with student subjects. We combine attractive elements from each of these lines of research by observing market professionals from the Chicago Board of Trade (CBOT) in a controlled environment. As a baseline, we compare their behavior to student choices in similar treatments. We further examine whether, and to what extent, cascade formation is influenced by both private signal strength and the quality of previous public signals, as well as decision heuristics that differ from Bayesian rationality. Analysis of over 1,500 individual decisions suggests that CBOT professionals are better able to discern the quality of public signals than their student counterparts. This leads to much different cascade formation. Further, while the behavior of students is consistent with the notion that losses loom larger than gains, market professionals are unaffected by the domain of earnings. These results are important in both a positive and normative sense.

download in pdf format
   (259 K)

email paper

This paper is available as PDF (259 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12767

Published: Jonathan E. Alevy & Michael S. Haigh & John A. List, 2007. "Information Cascades: Evidence from a Field Experiment with Financial Market Professionals," Journal of Finance, American Finance Association, vol. 62(1), pages 151-180, 02.

Users who downloaded this paper also downloaded these:
List and Haigh w16038 Investment under Uncertainty: Testing the Options Model with Professional Traders
Stekler Adequacy of International Transactions and Position Data for Policy Coordination
Levitt and List w14356 Field Experiments in Economics: The Past, The Present, and The Future
Bursztyn, Ederer, Ferman, and Yuchtman w18241 Understanding Peer Effects in Financial Decisions: Evidence from a Field Experiment
Ritter and Welch w8805 A Review of IPO Activity, Pricing, and Allocations
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us