Information Cascades and Technology
The article I chose discusses the effects of information cascades on two topics: stock prices and revolutions. The author used the 2011 Netflix stock prices as his example. Netflix had screwed over many investors who tried to short its stock. After countless beatings, these short investors gave up leaving Netflix’s stock price in an odd situation. The author states that the stock price became “a freelance entity divorced from any semblance of corporate fundamentals”. With short interest, when the price of a stock starts to fall those investors reap profits and support that price. Without enough short interest investors, Netflix’s stock price fell victim to the information cascade. When the price began to rise, people would buy (thus raising the price even further) and when the price began to fall, people would sell (thus driving the price even lower). Then the short investors returned after the few who remained during this period of instability reaped great profits from the large swings in stock price.
Next the author touched on the information cascades that take place when people/workers decide to revolt. Workers decide to revolt based on observing two main things: other workers’ behaviors and any other “signals” they receive about the state of the current regime (ie strong or weak). Not all rebellions are planned and can be a surprise to participants and spectators alike. The author’s example was of the Arab Spring, which was a wave of protests and demonstrations across the Middle East and North Africa. In this case, when some began to rebel, others saw it as a sign of the regime’s weakness and joined in. We can also take the Wall Street Protests as an example. When some people began protesting in New York, many others followed suit…and not just in New York, but in Boston, Amsterdam, and a number of other cities across the world.
Technology has had a profound effect on the world. The internet (and improved communication technology) has unified countries across the globe and their peoples have easy access to vast pools of information and news on current events. The dawn of smart phones and social media sites has heightened this connectivity and has put information, literally, at our fingertips. These changes have led to a much more rapid diffusion of information and ideas. The information cascades can now happen on a global scale and at a pace that increases positive feedback and lowers the chance of bad ideas or false information being kept in check. Not all the ideas and information that get spread are bad; new creative ideas can be disseminated to oppressed or “ignorant” people and help them to improve their lives. Information cascades come down to people simply copying other people and now they are no longer restricted and can perpetuate mass phenomena. I just hope people can continue to think for themselves and not believe stupid ideas just because they somehow become popular (ie How do people believe vaccines are bad for you?!).
http://www.economist.com/blogs/democracyinamerica/2011/10/mass-movements