Question

Explain the concept of "Information Cascades" and describe an experimental setup to demonstrate such cascades

Answer 1

Information cascade is generally a two step process. Firstly the person must encounter a decision and secondly outside factors can influence the decison.It is the decision that individuals have a dispropotionately strong effect on the behaviour.It is where a person makes a decision by observing or choices of others not making his own.There is no direct verbal communication between the individuals.

For example babies learn from adults and their behaviour is repeated by observation.In a marketing strategy we see numerous advertisements on various products.We take it on face value that X number of people have been using it and hence it must be a valuable one,we buy the product without testing or trying it.

In the simple Herding Experiment created by Anderson and Holt:

people make decisions sequentially and the person can observe the choices made by the person earlier

A decision has to be made

Each person has some private information that helps him in decision. Information cascade occurs in situations where seeing many people makes the same choice provides evidence that outweighs their judgement.Marketers use the idea of cascades to attempt to get a buying cascade started for a new product.