http://www.nytimes.com/2008/03/30/business/30fund.html?ref=yourmoney

As of now, the news of Bear Stearns has become widespread. With company stock valued at merely $10, Bear employees who had invested one-third of the company stock lost a majority of their personal wealth. Similar to the case of Enron, the collapse of the company also shattered the personal wealth of employees who held so many shares. To this day, it has been demonstrated that many employees are still investing too much in a single stock especially that of their own employer. It is recommended that one “invests no more than 5 percent in employer stock. This is especially true for employees of a large company whose stock is widely held, because they may already own some of its stock indirectly.” Thus, the fact that at least 40% of 401k participants are making huge bets on their company stock with numbers over 20 percent is extremely significant in terms of its implications.

Defined as a situation in which people observe the actions of previous deciders and make the same choice ignoring the information sent to them by their own private signal, information cascades are demonstrated. As employees of Bear Stearns, individuals were shown to invest heavily in the company’s stock even though the previous Enron example showed the disastrous outcome of doing so. However, it is important to note that unlike Bear Stearns, Enron was a company that encouraged employees to invest in their 401(k)’s with company stock. Bear Stearns, however, as one of the previously top ten investment banks where money and investing is their business, can now serve as a source of public signal that may well overturn this information cascade, motivating employees to diversify their holdings (accepting or rejecting alternatives). In addition to the Enron incident, these two signals have provided more information and value for future employees to analyze and if such a public signal is rejected, such a cascade may not be overturned.