INFORMATION CASCADES IN THE LABORATORY

When a series of individuals with private information announce public predictions, initial conformity can create an ''information cascade'' in which later predictions match the early announcements. This paper r eports an experiment in which private signals are draws from an unobse rved urn. Subjects make predictions in sequence and are paid if they c orrectly guess which of two urns was used for the draws. If initial de cisions coincide, then it is rational for subsequent decision makers t o follow the established pattern, regardless of their private informat ion. Rational cascades formed in most periods in which such an imbalan ce occurred.