We examine the robustness of information cascades in laboratory experiments.Apart form the situation in which each player can obtain a signal for free (as in the experiment by Anderson and Holt(1997),american Economic Review,87(5),847-862),the case of costly signals is studied where players decide whether or not to obtian private information,at a small but positie cost.In the equilibrium ofj this game,only the first player buys a signal and makes a decision based on this information whereas all following players do not buy a signalj and herd behind the first player.th experimental results show that too many signals are bought and the equilibrium predicton performs poorly.to explain these observations,the depth of the subjects'reasoning process is estimated,using a statistical error-rate model.Allowign for different error rates on different levels of reasonign,we find that the subjects' inferences become significantly more nioisy on higher levels of the though process,and that only short chains of reasoning are applied by the subjects.
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