Information Cascading
Information cascades occur when people make decisions based off of their observations of others’ actions. This phenomenon takes place anywhere from the protests on the streets of New York to how stocks rise in the stock market. An example of this occurred in Netflix’s share value 4 years ago. The price of the stock began to rise and continued to rise due to more and more people buying the stock. However, when the price began to fall, more and more people started to sell the stock, driving the price way down. There was no equilibrium point due to the information cascading that was occurring when people followed other peoples’ decisions on what they were doing with the stock. The people are influenced by others’ decisions because they think that the other people have additional information that they don’t. This leads to them following the trend and either buying or selling the stock based off of what everyone is doing. Therefore there is no equilibrium because either almost everyone buys the stock driving the price way up, or almost everyone sells the stock driving the price way down.
This phenomenon also occurs in the work place, when workers are trying to decide whether or not they are going to rebel against the company. The individual workers observe the other workers’ behaviors and look for any signals or indications of rebellion. If some of the workers begin to rebel, it is likely that more will follow until there is, “…a successful revolution and the rulers are overthrown.” At the same time, if no one rebels, then it is very likely that the rebellion will ever gain enough strength to overthrow the opposition. Other examples of information cascading can be seen in the mass protests that occurred in the streets of New York, where tons of people began, “…camping out to protest various inequities of economics and governance in New York City.” This protest led to other people camping out in Boston, London, Amsterdam, and about a hundred other cities around the globe.
http://www.economist.com/blogs/democracyinamerica/2011/10/mass-movements