Information cascades play a significant role from "summary" of Why Stock Markets Crash by Didier Sornette
The notion of information cascades is a key element in understanding the dynamics of stock markets. An information cascade occurs when individuals make decisions based on the actions of others, rather than relying on their own private information. This can lead to a snowball effect, where the decisions of a few individuals influence the decisions of many others, creating a self-reinforcing feedback loop. In the context of stock markets, information cascades can lead to herding behavior, where investors follow the crowd rather than conducting their own independent analysis. This can cause prices to deviate from their fundamental value, as the market becomes driven by sentiment r...
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