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The Prevalence of Information Cascades in a Technological Society

An information cascade occurs when a significant amount of people begin to imitate specific behaviors or trends despite the possibility of interpreting contradictory signals.  While it is human nature to model the behavior of others, such as in the model of observational learning, information cascades do present risks.  In today’s technological society, people and businesses have transitioned away from using previous success as a product-selection method and towards the concepts of word-of-mouth and imitative competition.  In the paper, “Information Cascades in the Adoption of New Technology,” Eric Walden and Glenn Browne discuss how the adoption of production and marketing processes in the worlds of information technology, information science, and electronic commerce have become dominated by the simple desire to imitate competitors.  While this does decrease the possible losses associated with utilizing a disadvantageous system, it can also prevent unexpected technological revolutions that could be hidden in the abnormal industrial practices.

Although this risk is worth discussing, it is not the central topic of the article.  Walden and Browne attempt to empirically explain the observed phenomena of information cascades in market evolution, which is based on the fact that individual competitors are not operating solely on the information and knowledge they possess but on evaluations of other businesses as well, and they arrive at fairly interesting conclusions.  Despite the fact that technology firms adopt the processes of others simply in a fad-like manner, the information cascades that arise in market tend to be beneficial.  This is the case, in the eyes of the authors, because incorrect cascades are more fragile in the presence of a single piece of contradictory information than correct cascades.  It is more likely for market researchers to recognize the validity of private information if it could put their firm ahead of the competitors who are falling into an incorrect cascade; thus, on the other end of the spectrum, it is more likely to adopt the mindset, “Well our private information indicates that this course of action is bad, but let us ignore that private information because it is currently popular in the market to follow this course of action.”  This can be related to our homework in which we were evaluating information cascades in the presence of high and low signals.  In technology firms, Walden and Browne concluded that a high signal for an alternative method would inspire more action than a low signal for the current method.  In conclusion, information cascades are highly prevalent and complex in today’s economy, and while they do seem to favor beneficial practices, they also risk progress by eliminating individuality.

The Source:

http://ewalden.ba.ttu.edu/pages/documents/walden_and_browne(2002a).pdf

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