Information Cascade Theory

Information Cascade Theory describes how individuals often base their decisions on the actions or choices of others rather than their own private information. When people observe others making a particular choice, they might assume those choices are based on valuable information, leading them to follow suit—even if they have different or better information themselves. This can create a ripple effect, where early actions heavily influence subsequent decisions, sometimes resulting in widespread consensus or herd behavior that may not be optimal or accurate.