Information Cascades in Economics and Mass Movements
The overall theme of this article is the unpredictability and influence of information cascades. The article contains several examples of real situations that are brought about when people act according to how other people act. The first is the recent behavior Netflix’s stock. Generally, many people buy a rising stock, driving up the price, and many people sell a falling stock, driving down the price. Due to a long increase in Netflix’s stock price, there was little shorting of the stock, and so the price rose faster. When it eventually started to fall, it was more sensitive to selling because of the unusual amount of shorting. This caused a series of unpredictable ups and downs that masked the actual value of the stock.
The article also mentions a study that applies the idea of information cascades to political revolution. If a small group attempts to overthrow a regime, others will think that the regime is weak and join the rebellion. This explains why revolutions are often surprising; assuming that many people resent a regime, it is easy to imagine that it takes only a few them to rebel in order to get many more to follow.
The article illustrates the ubiquitous influence of information cascades. They undoubtedly have a role in many different contexts, not just the typical example of economics. With the internet and social networking, information cascades are having a greater effect than ever. If a piece of information is held by relatively few people, it can rapidly be adopted by millions before the real value or sense is known. Social media and information cascades explain the surprise and scale of recent “uprisings” or mass movements such as the London riots and the “Occupy Wall Street” antics. Independent evaluation and even simple reasoning have never been more important.
http://www.economist.com/blogs/democracyinamerica/2011/10/mass-movements