Another factor in Information Cascades

An information cascade results from people making decisions based on the decisions made before them. An example of this is when someone chooses the brand name product as opposed to the private label one simply because fewer boxes of the brand name are left on the shelf. The private label brand is cheaper but the person assumes that the consumers before them knew something that they did not. Choosing the brand name becomes the “safer” option since it is chosen more frequently and trusted by consumers. This apparent risk factor is analyzed in the paper by Itamar Stimonson and discussed in more detail at http://www.gsb.stanford.edu/news/research/mktg_simonson_consumercompare.shtml. In this article, Stimonson’s research reports the different outcomes when consumers are implicitly or explicitly instructed to compare a product with its neighbors. When the consumers were implicitly given price information in an auction setting, they used the neighboring bidding prices to determine whether or not to raised their own offering bid. On the other hand when consumers were directed to make these comparisons, they became less willing to adjust their opening bid prices. This demonstrates how the increase in risk awareness caused the bidder to be more prudent with their price. This conclusion can be related back to the topic of information cascades reinforcing how decisions are affected by comparing alternatives. In fact, it appears that advertisers could make an information cascade occur more quickly if they do not make the comparison explicit. In this way, people will instinctively chose the option that appears more favorable at first glance, which tends to be what the majority has already chosen. Instead if the advertiser forces the comparison, the consumer may become more suspicious and less willing to make the purchase. Therefore, it is possible for a consumer to not get caught up in an information cascade despite the advertiser’s forced effort to highlight a favorable comparison.

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