In class we’ve talked about information cascade. One of the aspects is that when the majority of participates chose to accept/reject, it’s rational for you to mimic what they did no matter what signal you’ve got. The reason is that if more people chose to accept/reject, it is more probable that accept/reject is the right thing to do; in other words, majority rules. However, one question arises, any rational people would ask: “Is following what other people have done without thinking themselves truly rational?”

In the article “Herd Behavior and Public Information” by Pierre Lemieux, the writer talked about information cascades and the different variations. He specifically talked about the wrong cascades and their inefficiency. “Lots of people can be wrong for a long time.” Some of the examples include global environmental scares, jihad against smokers, etc. If everybody doesn’t think themselves and just follows what other people do, it’ll do a lot of bad things to the society.

I claim that wrong cascades are the ultimate causes for economical bubbles in the history.  For example, the housing bubble recently. All Americans believed that houses prices would forever rise, because of information cascade. More and more people could not enter the market, they took more and more risks. I believe some people noticed the already too-high prices of houses, but they, according to the “rational” solution in information cascades, followed what other people did.

The good thing is that wrong cascades will be corrected at some point. “To reverse wrong cascades, credible individuals must obtain, and act on, correct private information.” says Pierre, “There are good reasons to believe that wrong cascades, even supported by special interests, can be reversed by free speech, individual liberty, and the dispersion of power in society. Individuals and groups who defend such ideals are contributing to an efficient economy.”