Sponsorship and Information Cascades
The ability to learn from peers gave the human species a distinct advantage evolutionarily. Even in modern times, this tendency to follow others can be seen in Information cascades (Chapter 16). Information cascades occur when others’ decisions affect the decision of another person to the extent where they follow what others do regardless of their own personal signals.
An interesting property of information cascades is that some people have more personal signals available to them. On a similar note, some people believe that others have more signals and follow their decisions more. This is related to what happens in marketing and advertising. Often times, big companies sponsor athletes and give them monetary compensation in exchange for the athlete using the product. For example, one article [1], talks about how this sort of sponsorship leads the customers to believe that the brand supports the athlete and the athlete vice versa supports the brand. Due to this, future customers who are fans of a certain athlete are more willing to buy the sponsoring product because they think the athlete using it and thus, the athlete’s personal signals trump or add to add to any personal signals. The athlete essentially acts as a peer with many signals that affect the decision of a customer. Thus, through sponsorship, customers become more likely to buy a sponsoring product. As more people buy the product, or as the product sponsors more people, an information cascade develops that act to trump any negative personal signals or add to any positive personal signals.
Another interesting study [2], showed that companies were becoming event sponsors in order to target market at least 54% of the time. Target marketing is essentially where companies sponsor in order to attract a target audience who are likely to buy their product or a similar product. Again, through the sponsorship and information cascade begins whereby future customers use sponsorship as signs of positive signals from others and thus become more likely to buy the product. This not only shows the power of information cascades, but also shows that information cascades exist in very significant parts of our society.
[1] http://millionairecorner.com/Content_Free/Why-do-corporations-like-BMW-sponsor-golf-touraments.aspx
[2] http://www.wesun.net/english/index.php/news/show/id/754.html