Information Cascades in the Brain
The human brain is prone to information cascades. Studies have shown that people who receive inside information tend to change their behavior more than would be justified by the information alone. This effect is due to an information cascade in the brain. Getting special private information can make you feel special, and your brain might start overweighting the information you have received. A piece of new information can change your opinion or view on one thing, which may in turn change your opinion on another, and another, and so on. A single piece of of new information can cause compounding repercussions in the brain. In fact, the brain can weigh new information, and changes that resulted from that new information, so heavily that the brain becomes less receptive to additional new information. This can mean that learning new inside information can make you worse off than if you hadn’t learned it. A common example of this kind of information cascade is overreacting to a piece of new information. A new piece of information may seem more important than it actually is, causing you to act on it. You might then justify other actions that you may not have otherwise done based on the fact that you acted on the new information. This cyclical justification can quickly lead to a cascade of bad decisions, even though the cascade was started by correct information.
As we have seen in class, information cascades can be very dangerous. Although it might seem like a significant amount of information is being conveyed by previous actions or thoughts, it is often the case that the cascade is based off of very little information. It is clear that we must be careful not to be swept up in information cascades. Even in our own minds, we must be aware of what information our thoughts are based on, and not let an insignificant amount of information cause a cascade of incorrect ideas.
https://hbr.org/2015/04/having-inside-information-leads-to-worse-decisions