Paolo Figini, Ph.D and Laura Vici, Ph.D. Department of Economics, University of Bologna, Piazza Scaravilli, 2, Bologna, 40125, Italy
Previous literature highlights the importance of informational cascades in affecting many decision-making processes. When products are experience goods and choice is affected by customers’ imperfect information, some signals are perceived as indicators of quality, and herd behaviour may occur. This study examines informational cascades in the tourism context, where several services and commodities which compose the tourism product are offered by a plethora of firms, horizontally differentiated, whose information on quality is not publicly shared. The typical example is choice of the tourist, who is already in the destination, among a set of similar restaurants distributed along the seaside promenade. In this context, we study the conditions under which public available information such as posted prices are not sufficient to lead to a separating equilibrum. When pooling occurs, cues such as the number of persons seated in alternative restaurants or, similarly, the fraction of free seats, frequently drive consumer decision processes. In such situations, the recommendation of other tourists, or simply the imitation of their behaviour affect individual choices more effectively than guides or experts’ advice. This study also suggests possible recommendations for private providers and for the public sector in order to improve the diffusion of quality information and to enhance the efficiency of selection process in tourism. As a result, private firms could strategically use cues or the power of crowds to affect tourists purchasing selection process.