Taking the road less traveled by: Does conversation eradicate pernicious cascades?

نویسندگان

H. Henry Cao

Bing Han

David Hirshleifer

چکیده

We offer a model in which sequences of individuals often converge upon poor decisions and are prone to fads, despite communication of the payoff outcomes from past choices. This reflects both direct and indirect action-based information externalities. In contrast with previous cascades literature, cascades here are spontaneously dislodged and in general have a probability less than one of lasting forever. Furthermore, the ability of individuals to communicate can reduce average decision accuracy and welfare. Published by Elsevier Inc. JEL classification: D8; D83

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