• Table of Contents
    • Abstract
    • Keywords
    • Article
      • Observable actions versus observable signals
      • Order of information, noise, and information externalities
      • Fragility
      • Robustness of the basic model
        • The action space
        • The signal space
        • Observability of payoffs or signals
        • Other assumptions of basic model
      • Applications
        • Demand for goods and securities
        • Medicine
        • Politics
        • Finance
        • Zoology
    • See Also
    • Bibliography
    • How to cite this article

information cascades

Sushil Bikhchandani , David Hirshleifer and Ivo Welch
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

An information cascade occurs when individuals, having observed the actions and possibly payoffs of those ahead of them, take the same action regardless of their own information signals. Informational cascades may realize only a fraction of the potential gains from aggregating the diverse information of many individuals, which helps explain some otherwise puzzling aspects of human and animal behaviour. For example, why do individuals tend to converge on similar behaviour? Why is mass behaviour prone to error and fads? The theory of observational learning, and particularly of information cascades, has much to offer economics and other social sciences.
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Keywords

convergent behaviour; herding; imitation; information aggregation; information cascades and observational learning; observational learning; product life cycle; signalling; uncertainty
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Article

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How to cite this article

Bikhchandani, Sushil, David Hirshleifer and Ivo Welch. "information cascades." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 22 May 2013 <http://www.dictionaryofeconomics.com/article?id=pde2008_I000103> doi:10.1057/9780230226203.0799

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