Editing Information cascade (section)

=== Qualitative example ===

Information cascades occur when external information obtained from previous participants in an event overrides one's own private signal, irrespective of the correctness of the former over the latter.  The experiment conducted by Anderson<ref name="Anderson">{{cite journal |last1=Anderson |first1=Lisa R. |last2=Holt |first2=Charles A. |title=Information Cascades in the Laboratory |journal=The American Economic Review |date=1997 |volume=87 |issue=5 |pages=847–862 |jstor=2951328 }}</ref>  is a useful example of this process.  The experiment consisted of two urns labeled A and B. Urn A contains two balls labeled "a" and one labeled "b". Urn B contains one ball labeled "a" and two labeled "b". The urn from which a ball must be drawn during each run is determined randomly and with equal probabilities (from the throw of a dice). The contents of the chosen urn are emptied into a neutral container. The participants are then asked in random order to draw a marble from this container. This entire process may be termed a "run", and a number of such runs are performed.

Each time a participant picks up a marble, he is to decide which urn it belongs to. His decision is then announced for the benefit of the remaining participants in the room. Thus, the (n+1)th participant has information about the decisions made by all the n participants preceding him, and also his private signal which is the label on the ball that he draws during his turn. The experimenters observed that an information cascade was observed in 41 of 56 such runs. This means, in the runs where the cascade occurred, at least one participant gave precedence to earlier decisions over his own private signal. It is possible for such an occurrence to produce the wrong result. This phenomenon is known as "Reverse Cascade".