By an overwhelming margin, this past week’s posts have been about the potential irrationality of information cascades.  Moviegoers, home shoppers, hush puppies, flash mobs, stamp collectors, and wall street (see a great post by ehp1459, and a post about the Indian capital markets by randomvoice) all have a bit of blind-following-the-blind in them.  Posters were exceptionally keen to point out that the collapse of Bear Stearns may have followed some herding behavior: the value of the stock dropped to $2 after bad news and fear over investment banks, as posted by sl1201.  Lehman followed similar behavior even when management assured the company was on sound footing.  Outside of mortgage backed securities, eep writes about how Beanie Babies may have experienced a bubble of their own.  Let’s not forget pokemon trading cards too!  Thus, cascades potentially causing products to be mispriced.  On a further extreme, ninjaspleen looks at Asian Art — which may have decreased in quality as prices went up.  As prices went up, artists may have lowered creativity to output more and fullfill demand.  I’d like to see more work into how information cascades in a product market affect the underlying value of the product.

Although we’d like to be species-centric, Amcoops245 reminds us that not only humans follow cascading behavior.  Army ants can apparently follow each other until they form what’s called a “circular mill”: “Some mills can reach up to a 1,200 foot circumference (with a lap time of 2 1/2 hours) and will continue until the ants collapse and die or a group accidentally stray from the circle.”  Let’s hope humans don’t learn too much from those particular ants!  On a hopefully unrelated note, jeb369 points out that political elections exhibit cascade behavior when executed sequentially.  This type of behavior occurs less when elections are executed in a blind fashion, and each individual uses only their own information to judge.  Thus the wisdom of crowds loses legitimacy when the crowd follows the minority; any witness of proper hooliganism can attest to that.  Just like the ants, humans follow humans, and according to shoes14’s post (on a paper by Bikhchandani, Hirshleifer and Welch), humans don’t usually realize they’re part of an information cascade even when it occurs.

A few brave souls defend information cascades as a force of good.  sls14 writes about cell phones and positive externalities.  In a situation where it’s better to have all users choose one cell phone carrier than many carriers, it’s good for everybody to follow an information cascade.  For example, myusername asserts that information cascades were critical to the success of Blu-Ray over HD DVD.  However, even in a world with positive externalities, herding can lead to noncompetitive behavior.  Not long ago Microsoft Windows and Internet Explorer made up the majority of the OS & Browser market.  Many would contribute the success of these two pieces of software to the simple fact that they had a big base to start off with.  Sometimes information cascades can also be used to propogate potentially important information.  After all, much of the news that we get about “hot issues” come through the grapevine — through friends and family.  Matt fingers the topic of Global Warming, but surely many issues of the time have benefited in visibility through cascade effects.  However, sometimes cascades can take a long time to truly propagate information.  knight2612 brings up the case of LASIK eye surgery.  According to knight2612, Negative side effects only started cropping up a decade after the initial batch of individuals were operated on.  Thus for the first 10 years, there was a positive cascade based off no side effects, and the negative cascade settled in after that.

Outside of Information Cascades, jian2587 posts an interesting post about the applications of PageRank within a social context.  How can we use similar graph algorithms to learn about social settings?  bes36 writes about Visualizing Wikipedia and other large graphs — a good post for those interested in seeing some implementations of graph visualization.  Both irishlass and sammy make informative posts about auctions.  Finally, kudos to lepidoptera for posting xkcd comics.