blog #3 - Information Cascades: The Result of Evolution...

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Information Cascades: The Result of Evolution Information cascades have become one of the key aspects that characterize behavioral economics. These cascades exist in personal fashion choices, stock market, choosing courses, lane choice, rides at an amusement park, etc. The list goes on and on forever due to the simple idea behind human nature. Humans follow trends throughout life because it provides a “safety net” that keeps them secure. Although we all take risks in life from time to time, most of our actions are influenced by the popular majority. According to wikipedia, an informational cascade model has two key conditions: “people make sequential decisions with subsequent actors observing decisions (not information) of previous actors, and a limited action space (e.g. an adopt/reject decision).” In financial markets, information cascades based on certain investors can feed speculation and create cumulative price moves. An example could be a simple stock that gains attention from key investors who spark others to follow, and soon enough an excessive
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This note was uploaded on 04/06/2009 for the course ECON 2040 taught by Professor Easley/kleinberg during the Spring '07 term at Cornell University (Engineering School).

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