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Information Cascades and politics

The link below is to The Economist newspaper’s “Democracy in America” blog website. The post is by a correspondent, M.S.

In this Economist blog, correspondents share their opinions on American politics and policy. The blog post is titled “Information Cascades,” something we have recently learned about in class, and the writer M.S. shares some opinions on the theory and relates it to current political situations.
We learned in class and from the text that ” hearing a previous decision can cause a cascade despite everyone correctly making their best guess.”  That people often make decisions based on their observations of others actions, and that there are situations in which it may be rational for an individual to imitate others’ choices even if his or her own information suggests an alternate choice.
In this post, writer M.S. starts by relating the idea of information cascades to stock prices and their buying and selling trends. He then quotes two economics professors from the University of Oregon and the University of Birmingham, Chris Ellis and John Fender, from their paper titled “Information Cascades and Revolutionary Regime Transitions.” In this paper they “use the idea of information cascades to develop a theory of political regime change brought about by the occurrence or threat of revolution.” He quotes them discussing how their model applies to unfolding events of the ‘Arab Spring,’ as well as could be applied to the financial crisis. M.S. goes on to discuss the meetings of the euro-zone countries and says: “If some traders successfully short Italian debt, others will follow their example, and prices will plummet.” He then goes on to relate information cascades to the occupy Wall Street movement as well. He concludes with some thoughts about the term “information cascade” and how changes in information technology may leading to more of that kind of behavior.
Though this post does not focus on one specific current event relating to the theory of information cascades, I thought it would be interesting for those of us recently learning about the basic ideas of information cascades to see examples of the theory discussed and applied to current political issues. This blog makes some interesting points, quotes a paper on the idea, and relates information cascades to several important current political and economic issues.


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