The stock market is one place where activity is based on cascades. When someone invests in a particular stock, the price goes up and continues to go up because more and more people invest in it. Then someone gets new information and cashes out and others follow. The problem is when this happens rapidly. A company can go from flourishing to finished in a matter of days. This is exactly what happened a few weeks ago with Bear Stearns, a financial company that until this year had been a stable company.

http://www.reuters.com/article/newsOne/idUSN1724031920080317?pageNumber=1&virtualBrandChannel=0

At the beginning of 2007, Bear Stearns had record stock prices averaging around $170 per share. However, as the year progressed, people began to become more informed about the financial insecurities that the company was facing. This led to a relatively small portion of investors backing out and causing the price of the stock to slowly fall. In recent weeks, however, a cascading effect swept into motion and investors reacted to the other investors that had acted before them and the stock prices plummeted. In January 2008, the stock price remained at around $70. On March 12 the price per share was at $62 then by the 14^th the price fell to $30. Finally by March 16 the stock price reach an all time low of $2.

This rapid plunge in stock prices was due to an extreme cascading effect. People saw that other people were selling their stocks and decided to sell their own as well. Although there was probably some reasoning behind the initial withdrawal and the company was obviously in trouble, the crashing of the stock price did not accurately reflect how the company would have fared.