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Information Cascade

Most economic news articles are centered around the European situation and I think that the following article can be related to the concept of information cascade: here.

This article talks about emotional contagion (specifically fear) which is a great example of information cascade. Emotional contagion has to do with a specific feeling or emotion passing from person to person.¬† In terms of the European conflict, I think that the following quote from the article best relates the current issues to the concepts we discussed in class: “The dismal figures were the symptom of a broad retreat by investors this week from European stock and bond markets as they worry that eurozone leaders are no closer to finding a lasting solution.” In this case, the signal (here, a low signal) is the current news and status of the European economic crisis. As investors make decisions about what to do with their money, others are affected and a cascade is created. The fear contagion is a perfect example because after a few investors show fear and limit the amount of money they are willing to invest, others will follow suit and a trend/cascade will happen.

I think that the concept of information cascade is really interesting because it can apply to so many situations. For example, students can make decisions about their classes based on other decisions from their peers and form their opinion based on previous opinions. My decision to take Networks is a good example: hearing feedback from two of my friends made me choose to enroll regardless of any other factors that may have been present during class enroll.

Information cascade is a really interesting topic that can be applied to many situations and is really important to think about when investing activity in the stock market. This concept of cascading information is going to be really important in the upcoming European  economic conflicts. Investors are skeptical and the market is severely affected by the decisions of these investors. This is why people are trying to avoid fear/emotional contagion: once a few people start pulling out their money, others will follow.


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November 2011