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Severe case of Information Cascade: Diet Fads

The effects of information cascade seem harmless at first. And it is also a tool that many use to make decisions efficiently. Often times we don’t have all the necessary time nor the necessary resources to have in-depth analysis on every decision we make. We make decisions partly on the decisions based on others. There is an innate trust that we have on the decisions made before us and it is easy to make decisions that way. For example, if you are looking at two restaurants to eat at which are located right next to each other and in one restaurant you see that it is empty and the other restaurant you see that it is semi-full, you will most likely choose the restaurant that is semi-full. Consciously or subconsciously you make this decision because you believe that everyone else in restaurant that is semi-full has had the same decision to make before you and share the same tastes as you do so you can’t go wrong in following the same decision that everyone before you has made. This herding effect drives most consumer decisions today.

Information cascade, first coined in the work of Bikhchandani, Hirshleifer, and Welch, is a description of a phenomenon where people make decisions based on the decision made prior, inferring about what they know. This phenomenon is particularly evident in decisions that require a certain amount of expertise. There is less consequence to choosing an outfit to making a decision to take a drug. There is a level of trust consumers place on so-called experts. It is simply not feasible for everyone to conduct their own investigation to figure out whether the medicine they are taking has no harmful side effects. You could say that those given the first decisions are responsible of the cascade of information, whether false or true, that comes thereafter.

In this article, “Diet and Fad: A Severe Case of Mistaken Consensus”, the author demonstrates the consequences of a information cascade on a larger scale. Due to globalization and advent of technology, information cascades at a much quicker pace and people make herd decisions on a much larger scales. One evidence of this behavior is the much more frequent rise and fall of trends. With technologies like Yelp or built-in review system, with more confirmation bias leads to more certainty that upheld beliefs are truths. In this specific example, the surgeon general in 1988, C. Everett Kropp proclaimed from his almighty throne up top that fat is the new cigarette. “The notion that fatty foods shorten your life began as a hypothesis based on dubious assumptions and data; when scientists tried to confirm it they failed repeatedly,” as demonstrated in the article soon proved to be false. However, the fad caught on. For the next decade, millions of dollars were spent trying to create ways to solve this “fat problem.” Legislation were passed, consumer behavior changed, trends changed, industries rose and fell: War on Haagen-Daz was the next war on drugs. Fat is bad. Fat is deadly. These were unbroken truths that could not be scientifically held up in any mode of truth and American society suffered as a whole. With this information cascade came at a price. Attention was placed on something that attention should not be placed in. This is why those at the top have a greater responsibility to set the right ball rolling. There is power in words, more so today than ever before. With the right words you can save humanity and with the wrong one send humanity on a track to extinction. So choose you words carefully.

Link: http://www.nytimes.com/2007/10/09/science/09tier.html

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