Editing Information cascade (section)

=== Market cascades ===
Information cascades have become one of the topics of [[behavioral economics]], as they are often seen in financial markets where they can feed speculation and create cumulative and excessive [[market price|price moves]], either for the whole market ([[bubble (economics)|market bubble]]) or a specific asset, like a stock that becomes overly popular among investors.{{fact|date=March 2023}}

Marketers also use the idea of cascades to attempt to get a buying cascade started for a new product. If they can induce an initial set of people to adopt the new product, then those who make purchasing decisions later on may also adopt the product even if it is no better than, or perhaps even worse than, competing products. This is most effective if these later consumers are able to observe the adoption decisions, but not how satisfied the early customers actually were with the choice. This is consistent with the idea that cascades arise naturally when people can see what others do but not what they know.{{fact|date=March 2023}}

An example is Hollywood movies. If test screenings suggest a big-budget movie might be a flop, studios often decide to spend more on initial marketing rather than less, with the aim of making as much money as possible on the opening weekend, before word gets around that it's a turkey.{{fact|date=March 2023}}

Information cascades are usually considered by economists:{{fact|date=March 2023}}
* as products of [[rational expectations]] at their start,
* as irrational [[herd behavior]] if they persist for too long, which signals that collective emotions come also into play to feed the cascade.