How long did I take?
In class, we discussed the effect of information cascades in the herding experiment. Every person gets a private signal and knows the decision of the people before them. Then, after a certain number of people, everyone starts “following the herd”, making the same decision as the people before them, regardless of their private signal. Is there any other factor that can affect an information cascade, other than the information explicitly known by every participant? What happens when someone’s private signal conflicts with the herd choice?
This paper by Frydman and Krajbich explores if it is possible to determine the someone’s private signal through adding information about how they make their decision: reaction time, and if that helps prevent the herd from making the incorrect choice. It found two main conclusions. One is that longer response times are associated with decisions where someone’s private signal is different from the group choice. The second is that if the private signal conflicts with the group choice, the person is more likely to choose their signal if the predecessor had a long response time. In fact, the results showed that the participant was twice as likely to choose their signal. Furthermore, the payoffs did not increase significantly when participants had access to information about reaction time. They only changed in the case that the group made the wrong choice; the payoff increased by $0.41 in a game where each participant is given $1 for choosing correctly and $0 for guessing incorrectly.
Thus, we see that viewing the cascade as a response to purely previous choices and a private signal may not be enough to fully account for herd behavior. People use other cues, such as behavior to decide. The paper goes on to describe the effect of this work in several areas: the faster someone endorses a political candidate, or sends a job offer, the more affect they have on those making decisions after them.
Reference: https://pubsonline.informs.org/doi/epdf/10.1287/mnsc.2021.3994