Taking the Road Less Traveled by: Does Conversation Eradicate Pernicious Cascades?
Merage School of Business Working Paper, University of California, Irvine
28 Pages Posted: 22 Aug 2003 Last revised: 31 Jul 2018
Date Written: August 17, 2009
We offer a model in which sequences of individuals often converge upon poor decisions and are prone to fads, despite communication of the payoff outcomes from past choices. This reflects both direct and indirect action-based information externalities. In contrast with previous cascades literature, cascades here are spontaneously dislodged and in general have a probability less than one of lasting forever. Furthermore, the ability of individuals to communicate can reduce average decision accuracy and welfare.
Presentation slides available at https://ssrn.com/abstract=3217349.
Keywords: information cascades, herding, conversation, imitation, information externality
JEL Classification: D82, D83, G31, D23, K00
Suggested Citation: Suggested Citation