Question
An information cascade occurs when people observe the actions of others and then make the same choice that the others have made, independently of their own private information signals. A couple of real-world examples include the real estate crisis of 2007-2009 and the toilet paper shortage in 2020. In the former, home prices rose due to demand, only to crash later. In the latter, people assumed that because many others were buying toilet paper, there must be an urgency, leading to a shortage.
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When this process begins to avalanche out of control, it is called an "Information Cascade." The real estate crisis of 2007-2009 was an example of home prices rising due to demand, only to crash. People assume that because many others do something that urgency exists. (Toilet paper in 2020, for example.) The results can be catastrophic.
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