Networks Blog Post #3
https://www.investopedia.com/articles/investing/052715/guide-understanding-information-cascades.asp
In lecture, we analyzed the example of picking marbles from either a majority red bag or a majority blue bag to show how information cascades begin. The first person would pick marble, and depending on that marble, they would guess whether it came from a majority red bag or a majority blue bag. The second person would pick a marble and make a guess based on what they picked out of the bag. This is because this person does not have enough influence from enough people to impact their decision. The third person has the potential to create an information cascade depending on the situation that they are in. If both of the previous people made the same decision, the third person will be influenced and disregard whatever they pull from the bag. This would start an information cascade with every following person being influenced by the previous people.
In our daily lives, we make many decisions based on inferences of other people without even thinking about it. We usually think of being influenced by other people when we ask them for their opinion, or when they direct us to do something. In reality, this type of behavior influences information cascades. This is usually in a situation where there are more than 2 people involved. The article, “Understanding Information Cascades” gives the example of when we see a large group of people running, we begin to run because we assume danger, without having any physical evidence of it. This is because we act using “herd behavior”, assuming that if the majority makes a decision, they cannot be wrong. They use the quote, It’s more likely that I’m wrong than that all those other people are wrong. Therefore, I will do as they do.” This can be applied to ordering a very popular food, because everyone is ordering it. We assume that the food must be good if everyone else is ordering it, so we order it as well.