Fragility of Cascades

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An External Infusion of Information

One of the strengths of the Bikhchandani, Hirshleifer, and Welch model is that it not only explains why mass behavior occurs, it also explains why mass behavior can be fragile - why fads occur and quickly disappear. During the previous topic, we saw that an "over-rated" agent had the ability to increase the depth of a cascade. In the absence of such an agent, cascades remain shallow, that is, the amount of information agents receive from prior actions remains constant. Because of this feature, cascades exhibit fragility.

Bikhchandani, Hirshleifer, and Welch argue that an infusion of public information has the ability to disrupt and reverse a cascade. An example of an infusion of information is the publication of medical research, perhaps on the effects of smoking or herbal medicine. Such information, even when largely incomplete, can drastically alter behavior patterns.

In order to demonstrate this, we've constructed a society to the left with a special agent. Rather than representing a human actor, agent 9 represents a source of public information. This source is even less precise than the human agents. However, the main difference is that this agent makes his information public in all circumstances. Future human agents can always access the information signal of the source. Because of this, information is added to the society. Feel free to run the society now to get an idea of its behavior.

In experiments performed with such societies, we found that a public infusion of information could improve a society's chances of settling into the correct cascade, even when the public source was considerably less precise than the other agents.(1)

1. The "Informational Cascades" paper finds that if enough such information infusions occur, agents will eventually settle into the correct behavior. However, interestingly, there are scenarios under which public information actually decreases the chance of a society settling onto the correct behavior. This occurs when the public information prevents certain agents from disclosing their information signals.

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