Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades

I n 1995, management gurus Michael Treacy and Fred Wiersema secretly purchased 50,000 copies of their business strategy book The Discipline of Market Leaders from stores across the nation. The stores they purchased from just happened to be the ones whose sales are monitored to select books for the New York Times bestseller list. Despite mediocre reviews, their book made the bestseller list. Subsequently, the book sold well enough to continue as a bestseller without further demand intervention by the authors.' Presumably, being on a bestseller list helps a book sell more because consumers and reviewers learn from the actions of previous buyers. Reports of the actions or endorsements of one set of economic decisionmakers often influence the reactions and purchases of others. The transformation of New York's Times Square after long decay was triggered by an investment by Disney, after which "wait-and-see investors piled in" ("A Star is Reborn," 1996). Often there are opportunities to manipulate the process by which individuals learn from their predecessors. There is a word, "claque," for those hired to applaud loudly