Informational cascades in the laboratory: Do they occur for the right reasons?

Recently, the theory of informational cascades has been tested in an experi ment by L, Anderson and Ch, Holt (American Economic Review, 87 (1997) 847-8 62) who report that their data support the theory amazingly well. In this p aper we report on an experiment designed to iind out whether observed casca des are indeed due to rational Bayesian updating. However, we find little s upport for rational updating. The simple heuristic "follow your own signal" does much better in explaining our data than Bayesian rationality. (C) 200 0 Elsevier Science B.V. All rights reserved. PsycINFO classification. 2343 JEL classification: D8; C9.