Fashion Industry and Information Cascades
Individual decision-making is more often than not influenced by the opinions of others. We often find ourselves following the decision of the majority—regardless of personal opinions. This phenomenon is explained in economics as an “information cascade.” In economic terms, it describes the situation in which every subsequent individual, based on the observations of others, makes the same decision independent of his/her private signal. The behavior characterizing information cascades is prevalent in the fashion industry, voting for popular candidates, and the spread of popular technology.
In this article, writer Venkatesh explores the idea of informational cascades in the fashion industry—looking specifically at super models. In a typical fashion show, there are about 40-50 models that are needed. However, a typical fashion agency must choose from over 300 models. If a well-known fashion designer was to choose a model based on the feeling that she would be appropriate for the fashion show, it is very likely that other fashion designers will also hire this model. Why is this so? If given some thought, it is very probable that another designer would want the model that was part of the fashion show of a popular designer, regardless of what he or she thinks of this model. If a popular designer prefers a model, she should be good. Thus, a designer would want to send a signal that his or her show is prestigious by hiring a model preferred by a well-known designer.
Thus the “super model” has entered an information cascade. From now on, it is likely that she will be chosen for many fashion shows. Essentially, the fame of models has begun through the simple model of an information cascade. Informational cascades are not just for hypothetical situations found in a textbook, but they can be found in the real world everyday.]
Reference: http://www.thehindubusinessline.com/todays-paper/tp-investmentworld/article1014443.ece