How fragile are information cascades?

How fragile are information cascades?

It is well known that sequential decision making may lead to information cascades. That is, when agents make decisions based on their private information, as well as observing the actions of those before them, then it might be rational to ignore their private signal and imitate the action of previous individuals. If the individuals are choosing between a right and a wrong state, and the initial...

Risk Cascades: Anticipating Resilient and Fragile Markets

The global fi nancial crisis of 2008 and the related failure of risk controls put in place after the tech bubble collapse have created a good deal of soul searching in the investment community. This has generated simplistic explanations that either quantitative methods do not work, or conversely that they were applied incorrectly due to the ineptitude and greed of money managers, fund sponsors ...

How Restrictive Are Information Partitions?

Recently, several game theorists have questioned whether information partitions are appropriate. Bacharach (2005) has considered in particular more general information patterns which may not even correspond to a knowledge operator. Such patterns arise when agents lack perfect discrimination, as in Luce’s (1956) example of intransitive indifference. Yet after extending the state space to include...

Food Taxes: How Likely Are Likely Effects?

Aggregate information cascades

We introduce a new model of aggregate information cascades where only one of two possible actions is observable to others. Agents make a binary decision in sequence. The order is random and agents are not aware of their own position in the sequence. When called upon, they are only informed about the total number of others who have chosen the observable action before them. This informational str...