Informational cascades under variable reliability assessments: A formal and empirical investigation
Lara Elise van Weegen

Abstract:
An informational cascade is said to occur when decision-makers ignore their private information, in favor of information inferred from decisions of predecessors in a sequence. Both experimental and formal-theoretical studies have shown that informational cascades (rationally) happen. It has also been shown that the prevalence of cascades is fragile to external influences. This thesis examines our intuition that cascades are prone to derail when the assessed reliability of predecessors in sequence differs. The approach is twofold. We created a way to formally analyze (using tools from Dynamic Epistemic Logic) the informational flow behind the a informational cascade enhancing situation under varying perceived reliability of predecessors. The situation we model is the (canonical) urn-example. Secondly, we designed and conducted an experiment in which the effect of perceived reliability on prevalence of cascades in the laboratory is tested on 300 participants. Results from both parts show that indeed, the effect of assessed reliability has strong potential to derail informational cascades and should not be neglected.