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

See all articles by H. Henry Cao

H. Henry Cao

University of North Carolina (UNC) at Chapel Hill - Finance Area

Bing Han

University of Toronto, Rotman School of Management

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Date Written: August 17, 2009

Abstract

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

Cao, Huining Henry and Han, Bing and Hirshleifer, David A., Taking the Road Less Traveled by: Does Conversation Eradicate Pernicious Cascades? (August 17, 2009). Merage School of Business Working Paper, University of California, Irvine. Available at SSRN: https://ssrn.com/abstract=422180 or http://dx.doi.org/10.2139/ssrn.422180

Huining Henry Cao

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Bing Han

University of Toronto, Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
Canada
4169460732 (Phone)

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
211
Abstract Views
2,195
rank
145,296
PlumX Metrics