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The Role of Information Cascades in Global Unrest

This article in the Economist discusses a few current phenomena that can be explained by the concept of an information cascade. This is founded by the underlying definition of information cascades: “people making decisions on the basis of their observations of other peoples’ actions.”

The first topic discussed is one that is most prevalent in the public conscience – the financial crisis. Through the metaphor of stock price for the media company Netflix, the article relates how the value of a stock is, in essence an information cascade. When a stock price is rising, more people buy, and the value of the stock goes up. When a price is falling, more people sell, and the value of the stock is reduced. The stock can thus be driven to either of two extremes by an information cascade. Many of the most devastating events of the financial crisis, including the decline of Netflix, can be explained by this phenomenon. The probability of a person choosing to buy or sell a stock is conditionally based on the buying and selling activities of the market. Information cascades may thus have had an important influence on the stock market, especially in a time of such dramatic downturns in the economy.

Similarly, the phenomenon of political regime change is described by the information cascade concept. If citizens of a nation rebel, others may take the rebellion as a sign of the regime’s weakness (thereby increasing the probability of a successful revolution) and follow in suit. Once the cascade begins within a nation, a revolution is launched and may prove to be successful. A successful revolution in one nation may trigger unrest in neighboring nations, thus resulting in a rebellion driven by an information cascade between nations. This phenomenon is illustrated very clearly in the recent wave of demonstrations occurring in the Arab world, i.e. the ‘Arab Spring’. Major uprisings in Tunisia, Egypt, Libya, Syria, Algeria, and Iraq, to name just a few, have involved sustained campaigns against the dominant regimes and have resulted in some successful political changes.

Protests for regime change are not limited to regions of the Arab world. The recent “Occupy Wall Street” demonstration in New York City is a sustained protest against the unjustness of economics and politics in the nation. Those who protest claim to be the “99%”, the people who suffer as a consequence of the great disparity of wealth distribution in the population. News of this protest has spread through a variety of global communication networks and started a cascade of demonstrations. Similar “Occupy” protests have spread across the nation and to nearly 100 cities worldwide. Yet again, the “herd mentality” or imitative behavior, spurned by the increasing probability of success given the state of events,  leads to an information cascade that has spread far and wide.

In essence, the three examples detailed above are linked to each other. The information cascades involved all lead towards a state of global turmoil that is exacerbated by mass movements for economic and political change. This has been linked, in part, to the rise of communication technologies that have made the global society more closely knit than ever before. People are linked to a broad network of connections and the innate characteristic of imitating the behavior of others (to increase the probability of a successful decision) drives information cascades at a faster rate and across a broader range than previously. Mass movements grow larger by “positive feedback” that is not inhibited by the checks that are naturally in place. This article predict that this state of affairs reduces the probability that any global system will reach an equilibrium. Instead, the world promises to follow information cascades (both well informed and error propagating) and cycle widely between various extremes.


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