The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Information Cascades

  • Sushil Bikhchandani
  • David Hirshleifer
  • Ivo Welch
Reference work entry


An information cascade occurs when individuals, having observed the actions and possibly payoffs of those ahead of them, take the same action regardless of their own information signals. Informational cascades may realize only a fraction of the potential gains from aggregating the diverse information of many individuals, which helps explain some otherwise puzzling aspects of human and animal behaviour. For example, why do individuals tend to converge on similar behaviour? Why is mass behaviour prone to error and fads? The theory of observational learning, and particularly of information cascades, has much to offer economics and other social sciences.


Convergent behaviour Herding Imitation Information aggregation Information cascades and observational learning Observational learning Product life cycle Signalling Uncertainty 

JEL Classification

D8 G1 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Sushil Bikhchandani
    • 1
  • David Hirshleifer
    • 1
  • Ivo Welch
    • 1
  1. 1.