The Great Cascade
A financial bubble can be analyzed through the lens of information cascades. An example of this is the real estate bubble that led to the Great Recession. While there are a multitude of factors that contributed to the crisis, one of the underlying causes was an information cascade.
The idea that real estate, specifically mortgage backed securities, were safe and stalwart invests led to the rise in their prices and demand for these assets all throughout the early 2000s. Mortgages themselves were being given to very risky borrowers at variable rates, so the actual inherent risk that any mortgage broker could have seen was much higher than the one being perceived by lenders. The idea that if everyone else is giving these loans and sees mortgages as safe assets perpetuated among the masses as a cascade of misinformation, highlighted in this opinion piece.
In fact, the whole movie The Big Short is about those few individuals who powered through this cascade and evaluatd private information enough to profit immensely off of it. Investors around the world were on this cascade of information throwing money at mortgage backed securities without fully comprehending the risk that was misrepresented to them by financial analysts who trusted the inherent belief passed on through people that the real estate market was solid as a rock and would always grow. This unfortunate cascade ending up pretty much destroying the world economy for a bit.
http://economistsview.typepad.com/economistsview/2008/10/informational-c.html