User:Edmcrowa/sandbox

3rd Entry

Modern-Day Use and Applications

Information cascades are terms that describe logical processes. Today, as certain markets and fields become more interconnected it is critical in understanding various ways information can be passed downstream. As such, they can be used as vehicles to analyze these processes. In the financial sector informational cascades have been used to analyze the financial volatility of international markets. In 2004, Helmut and Wagner analyzed various financial sectors around the world and they found that increased access to information had peculiar affects on inflation and central banks.

Regarding today's society, the most direct application of information cascades would be through social media. A more recent 2012 study done by both Rutgers University and the Rensselaer Polytechnic Institute, use cascades to understand how information passes between individuals during, and after, a major crisis event. Moreover, they observed what would happen if they sent out 'warning tweets' and observed both social media responses and the general public's response. The concept of cascades can be applied even further, as seen in a 2015 short article on how Arizona State University is using the concept of information cascades to tackle ISIS recruitment through social media. This sector seems to be the pivotal area in understanding how information cascades are created, function, and their outcomes. A 2011 review by Aziz Huq peers into how a lack of exposure to various information cascades can push individuals into a certain type of groupthink, especially when concerning religious speech. As a 2010 article by the Cambridge University Press outlined as societies become more interconnected and globalized be it through social media, various networks, or individuals of different backgrounds it becomes increasingly important in understanding how these affect the passage of information from one point to the next.

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Hi Edward, In the following, I began to use the underline feature to point out awkward writing and to insert my own questions before I saw your note. Before you get too far into the writing, I think it's time to connect informational cascades with the course topic of globalization. I did a quick google search and saw the concept has been used to understand how currencies and global markets operate. That would be a good direction to go in. Regards, Dr. Haenn

*After much deliberation, I have decided to add a Globalization section to the Information Cascades page and edit the guts of the main body later”

GLOBALIZATION AND INFORMATION CASCADES

As previously stated, informational cascades are logical processes describing how an individual’s decision process changes based upon outside information. Cascades have never been a household name; at best, they exist hypothetically. Over the past few decades, cascades saw an increase in popularity through various fields of study. Specifically, they have been quite useful in comparing thought processes between Greek and German organic farmers. The aforementioned study suggests discrepancies between Greek and German thought processes based upon their cultural and socioeconomic differences. Even further, cascades have been extrapolated to ideas such as financial volatility and monetary policy. In 2004 Helmut Wagner and Wolfram Berger suggested cascades as an analytical vehicle to examine changes to the financial market as it became more globalized. Wagner and Berger noticed structural changes to the framework of understanding financial markets due to globalization; giving rise to volatility in capital flow and spawning uncertainty which affected central banks. Additionally, information cascades are useful in understanding the origins of terrorist tactics. When the attack by Black September occurred in 1972 it was hard not to see the similarities between their tactics and the Baader-Meinhof group (also known as the Red Army Faction [RAF]). All of these examples portray how the process of cascades were put into use. Moreover, it is important to understand the framework of cascades to move forward in a more globalized society. Establishing a foundation to understanding the passage of information through transnational and multinational organizations, and even more, is critical to the arising modern society. Summing up all of these points, cascades, as a general term, encompass a spectrum of different concepts. Information cascades have been the underlying thread in how information is transferred, overwritten, and understood through various cultures spanning from a multitude of different countries.

An informational (or information cascade) cascade is generally accepted as a two-step process. For a cascade to begin an individual must encounter a scenario with a decision, typically a binary one. Second, outside factors can influence this decision (typically, through the observation of actions and their outcomes of other individuals in similar scenarios). Due to this influence, researchers have drawn comparisons between information cascades and herd behavior.

The two-step process of an informational cascade can be broken down into five basic components:

1. There is a decision to be made – for example; whether to adopt a new technology, wear a new style of clothing, eat in a new restaurant, or support a particular political position

2. A limited action space exists (e.g. an adopt/reject decision)

3. People make the decision sequentially, and each person can observe the choices made by those who acted earlier

4. Each person has some information aside from their own that helps guide their decision

5. A person can't directly observe the outside information that other people know, but he or she can make inferences about this information from what they do

Social perspectives of cascades, which suggest that agents may act irrationally (e.g., against what they think is optimal) when social pressures are great, exist as complements to the concept of information cascades. More often the problem is that the concept of an information cascade is confused with ideas that do not match the two key conditions of the process, such as social proof, information diffusion, and social influence. Indeed, the term information cascade has even been used to refer to such processes.

Haven’t really drafted a second paragraph to put up. However, the body paragraphs regarding qualitative and quantitative examples are things I want to rid the page of. A lot of the sequential body paragraphs are way too complicated for someone just perusing wikipedia. Thus, they are inappropriate and could be written elsewhere. But I can post what I have done so far below:

Basic model

Qualitative example[edit]

Information cascades occur when external information obtained from previous participants in an event overrides one's own private signal, irrespective of the correctness of the former over the latter. The experiment conducted in is a useful example of this process. The experiment consisted of two urns labeled A and B. Urn A contains two balls labeled "a" and one labeled "b". Urn B contains one ball labeled "a" and two labeled "b". The urn from which a ball must be drawn during each run is determined randomly and with equal probabilities (from the throw of a dice). The contents of the chosen urn are emptied into a neutral container. The participants are then asked in random order to draw a marble from this container. This entire process may be termed a "run", and a number of such runs are performed. The repetitious use of A and B in the previous is a bit confusing. Are the "marbles" the same as the labeled balls? Also, do you think "urn" is the word you want to use?

Each time a participant picks up a marble, he is to decide which urn it belongs to. His decision is then announced for the benefit of the remaining participants in the room. Thus, the (n+1)th ???? participant has information about the decisions made by all the n participants preceding him, and also his private signal which is the label on the ball that he draws during his turn. The experimenters observed that an information cascade was observed in 41 of 56 such runs. I'm guessing you are drwing here on an article, but the language is confusing. Why would some runs employ an informational cascade and not others? Was this an actual experiment or a thought experiment? This means, in the runs where the cascade occurred, at least one participant gave precedence to earlier decisions over his own private signal. Were all participants men? It is possible for such an occurrence to produce the wrong result. This phenomenon is known as "Reverse Cascade". This language of "Reverse cascade" is confusing. What exactly is reversed here?

Quantitative description[edit]

A person's signal telling them to accept is denoted as H (a high signal, where high signifies he should accept), and a signal telling them not to accept is L (a low signal). The model assumes that when the correct decision is to accept, individuals will be more likely to see an H, and conversely, when the correct decision is to reject, individuals are more likely to see an L signal. This is essentially a conditional probability – the probability of H when the correct action is to accept, or . Similarly  is the probability that an agent gets an L signal when the correct action is reject. If these likelihoods are represented by q, then q > 0.5. This is summarized in the table below.

Agent signal	True probability state
	Reject	Accept
L	q	1-q
H	1-q	q

The first agent determines whether or not to accept solely based on his own signal. As the model assumes that all agents act rationally, the action (accept or reject) the agent feels is more likely is the action he will choose to take. This decision can be explained using Bayes rule:

If the agent receives an H signal, then the likelihood of accepting is obtained by calculating . The equation says that, by virtue of the fact that q > 0.5, the first agent, acting only on his private signal, will always increase his estimate of p with an H signal. Similarly, it can be shown that an agent will always decrease his expectation of p when he receives a low signal. Recalling that, if the value, V, of accepting is equal to the value of rejecting, then an agent will accept if he believes p > 0.5, and reject otherwise. Because this agent started out with the assumption that both accepting and rejecting are equally viable options (p = 0.5), the observation of an H signal will allow him to conclude that accepting is the rational choice.

The second agent then considers both the first agent's decision and his own signal, again in a rational fashion. In general, the nth agent considers the decisions of the previous n-1 agents, and his own signal. He makes a decision based on Bayesian reasoning to determine the most rational choice.

Where a is the number of accepts in the previous set plus the agent's own signal, and b is the number of rejects. Thus, . The decision is based on how the value on the right hand side of the equation compares with p.

Explicit model assumptions[edit]

The original model makes several assumptions about human behavior and the world in which humans act, some of which are relaxed in later versions or in alternate definitions of similar problems, such as the diffusion of innovations.

1. Boundedly Rational Agents: The original Independent Cascade model assumes humans are boundedly rational – that is, they will always make rational decisions based on the information they can observe, but the information they observe may not be complete or correct. In other words, agents do not have complete knowledge of the world around them (which would allow them to make the correct decision in any and all situations). In this way, there is a point at which, even if a person has correct knowledge of the idea or action cascading, they can be convinced via social pressures to adopt some alternate, incorrect view of the world.
2. Incomplete Knowledge of Others: The original information cascade model assumes that agents have incomplete knowledge of the agents which precede them in the specified order. As opposed to definitions where agents have some knowledge of the "private information" held by previous agents, the current agent makes a decision based only on the observable action (whether or not to imitate) of those preceding him. It is important to note that the original creators argue this is a reason why information cascades can be caused by small shocks.
3. Behavior of all previous agents is known

**** Maybe for this section using some examples would be helpful for the reader since the wikipedia audience can vary in age, experience, and prior knowledge. The use of agent can seem to vary and too broad for some people to fully comprehend. Maybe try adding a hyperlink to agents if that might be helpful. Other than that this section has strong writing, was unbiased, and could easily fit within the wikipedia article.***** - Heidi

Resulting conditions[edit]

1. Cascades will always occur – as discussed, in the simple mode, the likelihood of a cascade occurring increases towards 1 as the number of people making decisions increases towards infinity.
2. Cascades can be incorrect – because agents make decisions with both bounded rationality and probabilistic knowledge of the initial truth (e.g. whether accepting or rejecting is the correct decision), the incorrect behavior may cascade through the system.
3. Cascades can be based on little information – mathematically, a cascade of an infinite length can occur based only on the decision of two people. More generally, a small set of people who strongly promote an idea as being rational can rapidly influence a much larger subset of the general population
4. Cascades are fragile – because agents receive no extra information after the difference between a and b increases beyond 2, and because such differences can occur at small numbers of agents, agents considering opinions from those agents who are making decisions based on actual information can be dissuaded from a choice rather easily. thus suggests that cascades are susceptible to the release of public information. also discusses this result in the context of the underlying value p changing over time, in which case a cascade can rapidly change course.

***For this I want to get rid of most of the statistical data. A lot of it seems extremely confusing and not extremely necessary to understanding an information cascade as a whole. Instead it just kind of makes it harder to understand if we put it into mathematical terms***

******I like how in this section you use clearer writing and some small examples that made it really helpful for me to understand. Specifically in the sentence beginning with "More generally.." Make sure to capitalize the words at the beginning of the sentences if you are going to add a period to the sentence before. The last thing that could be explained a little more is what are the resulting conditions? Are these well known rules of cascades? I think that overall the sections could use brief descriptions to make sure the readers with no prior knowledge will understand.****** - Heidi