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Observing Cascade Behavior Depending on the Network Topology and Transaction Costs

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Abstract

The Internet, smartphones, Social Networking Service, and other IT goods have improved the overall quality of life, but created an over-connectedness with extremely low transaction costs in our society, amplifying latent social problems. In light of this, we demonstrate the main mechanism of information cascades in various network topologies using computational model that can consider autonomous agents, the adoption of others’ decisions, and network topologies. Our findings reveal that: (1) lower transaction costs may amplify the occurrence of information cascades; (2) the network structure significantly affects the behavior of traders in terms of the individual and the whole market; and (3) highly spread trend-shift cascades can be observed in scale-free networks when the influence of a dominant agent’s decision significantly affects the connected agents. Such findings highlight how a highly over-connected network has its critical shortcomings.

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Authors and Affiliations

  1. Naveen Jindal School of Management at the University of Texas at Dallas, Richardson, TX, USA

    Joohyun Kim

  2. School of Business and Technology Management, College of Business, KAIST, Daejeon, Republic of Korea

    Ohsung Kwon & Duk Hee Lee

Authors
  1. Joohyun Kim
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  2. Ohsung Kwon
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  3. Duk Hee Lee
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Correspondence to Duk Hee Lee.

Additional information

This work was supported by grants from the National Science Foundation (DMS-1612880) and by the National Research Foundation of Korea Grant funded by Korean Government (2014S1A3A2044459).

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Kim, J., Kwon, O. & Lee, D.H. Observing Cascade Behavior Depending on the Network Topology and Transaction Costs. Comput Econ 53, 207–225 (2019). https://doi.org/10.1007/s10614-017-9738-9

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