In the article “Hollywood Economics: How extreme uncertainty shapes the film industry,” author Arthur Vany explores how movies are in fact an information cascade.  He claims that movies that have lots of special effects, a big budget, and are filled with well-known big stars will attract more viewers because it is essentially an information cascade.  Movies that generate high opening box-office revenues act as a “signal” to other people that this movie is good.  Subsequently, other moviegoers choose to see these high-grossing movies.  This is essentially an information cascade. 

            Vany compares moviegoers to lemmings.  He claims that if you can generate great hype about the movie and do extremely well in its opening, then people who use box-office grosses as a means to evaluate the movie will act like “lemmings” and follow suit.  He calls the initial box-office revenues a “public signal” that leads to information cascades.  If the public signal is High, they will Accept.  If it is Low, they will Reject.  This leads to an Accept or Reject information cascade depending on whether or not the film received high revenues or low revenues. 

            Vany, however, makes a distinction between uninformative information cascades and informed information cascades.  The scenario I just described about using box-office revenues to decide whether to go to a movie or not is what Vany calls an uninformative information cascade.  It is considered uninformative because the only piece of information that moviegoers have is the choice of other moviegoers (whether a lot went to see the movie or not); they do not have any private information how the movie actually was.  However, Vany says that an uninformative information cascade in the movie industry is very unlikely since people do share their opinions about the movies and thus, people usually do have some private information.  Box-office grosses in the opening weeks may make an impact on the moviegoers’ decisions initially, but this uninformative information cascade is likely to be broken as moviegoers get more and more private information.  At that point, they make the choice whether to see the movie based on other people’s judge about the quality of the movie instead of just how much revenue the movie has brought in in comparison with other movies playing.  The private information that moviegoers receive can act to break the uninformative information cascade and now people choose to see a movie based on the private information they receive. 

            We can clearly see how this relates to what we have been studying in class about information cascades.  Moviegoers use a signal and either Accept or Reject as learned in class.  In this case, the signal is initially the opening box-office grosses and then gradually turns into private information about the quality of the movie.  If many people accept initially, this causes people to think that since so many people are seeing the movie, it must be good and leads to an acceptance cascade.  Similarly, if people do not go see the movie, people will act on the prior choices of moviegoers and conclude that the movie is bad and not go see it.  Private information then can also come into play to affect people’s decisions of Accept or Reject.  This is an obvious case of an information cascade. 

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