It is a mystery to the even biggest Hollywood producers why some films that have 100 million dollar plus budgets fail while films sporting just a 60,000 dollar budget, such as the Blair Witch Project, go on to make millions. A Los Angeles Times article entitled “Meet Hollywood’s Latest Genius” theorizes that it is the information cascades that occur amongst the viewing audience that causes a film to fly or flop. To demonstrate this theory, Arthur De Vany, a retired economics professor from UC Irvine, uses the concept of an ever changing selection of breakfast cereals to represent films. Given a large number of cereals, certain cereals will over time enjoy more success. This is based on the principal that once an individual randomly finds a cereal they enjoy, they will go on to tell their friends about the cereal, causing them to try the cereal, etc, causing an informational cascade resulting in that particular cereal gaining in popularity. However, over time people will become bored with this cereal, causing a new cereal to take its place with a new informational cascade occurring. Films, De Vany says, operate on the same principles. When someone sees a film they enjoy, they tell their friends about it who in turn see it and then tell their friends. The success or failure of a film is largely dependent on positive or negative opinions put forth by those who have viewed it.
Information Cascades are essential to the world of Hollywood. The very existence of film critics is testament to this. Here, you have one individual forming an opinion, and then influencing large numbers of other individuals with their opinion. However, this begs the question as to how these individuals came into a position where their opinion is “powerful” enough to commandeer the opinion of others. This could be explained by a “reverse cascade” in which, because in the past their opinion was influenced by and thus matched the public opinion, their views are now seen to be representative of the majority and thereby gain weight.
Finally, while the article focused mainly on the film industry, the concept of information cascades influencing consumer choice can be applied to any industry where many product choices are available to numerous consumers. Take the auto industry. Given a BMW and a Mercedes-Benz and enough means for either, consumers who have had friends that spoke highly of their BMW will most likely choose the BMW, while those consumers who know people with negative experiences with BMWs will most likely buy the Mercedes-Benz.
* You can follow any responses to this entry through the RSS 2.0 feed.