http://www.nytimes.com/2008/03/02/business/02view.html?_r=1&oref=slogin This article is about some of the reasons the experts did not detect the housing bubble before it happened.  Much of what happened was because many of the top experts, including Alan Greenspan, thought the housing bubble was not going to be a bubble, but a ”froth”.  This is a term used by Greenspan to explain that it would not be a full bubble, but a series of small bubbles that he thought would never grow to a scale that would effect the whole economy.  The failure of recognizing this housing bubble is the cause of the failing United States Financial Institutions (many other reasons, of course).  This is because average investors did not see perceived risk, and trusted the expert’s views.  They saw the chance to profit and did not think enough about risk.   In this article it explains,”Three economists, Sushil Bikhchandani, David Hirshleifer and Ivo Welch, in a classic 1992 article, defined what they call “information cascades” that can lead people into serious error. They found that these cascades can affect even perfectly rational people and cause bubblelike phenomena. Why? Ultimately, people sometimes need to rely on the judgment of others, and therein lies the problem. The theory provides a framework for understanding the real estate turbulence we are now observing.”   Basically the problem was too many experts underestimated the severity of the situation and told people everything was fine, which increased people’s desires to invest thinking of profit not risk, which put the wrong pressures on the market, eventually leading to a seriously failing market and many foreclosures on peoples homes.  In other words, the experts had incomplete information that caused people to have a fake sense of confidence causing them to enter the housing market and bid up prices, which resulted in a bubble that is hurting the whole economy. This is how information cascade can cause huge problems, when people don’t make their own decision and rely too heavily on the advice of so called “experts”.