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Localized Conformity in Modern Societies

Mass behavior has long been studied by social scientists. How and why do people imitate others in the decisions they make? Why might all individuals in a social group adopt a particular behavior that ultimately proves detrimental?

Several mechanisms have been offered as an explanation for the social phenomenon of mass behavior, including network externalities, conformity preference, and sanctions on deviants. The model proposed by the authors of "Informational Cascades" is unique, however, in that it explains the fragility of some mass behavior phenomena. Why does a single celebrity have the ability to alter the fashion trends of the entire teenage population of the United States? How does a protest by a small number of students become a campus-wide movement?

The Bikhchandani, Hirshleifer, and Welch model explains such fragile trends using a mathematical model of rational agents making decisions from noisy signals. Specifically, a Perfect Bayesian Equilibrium is demonstrated in which self-interested agents imitate past actions. Here, we implement the same model in a computational stochastic framework. We show that the assumption of sequential learning using Bayes' rule leads to frequent occurrence of the phenomenon called Informational Cascades.

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