1.

Information Cascades
5.1

If the technology is actually bad, then individuals would rather have payoff of zero hoping the
technology is not adopted rather than having negative payoff when technology is adopted and turns
out to be bad later. With this new information about payoffs received by individuals who moved
previously will cascade information to be voted in the forward sequence. If individuals do not
understand that individuals before them are not adding information and simply following
recommendations of previous individuals then cascade will start even if majority of signals in high.
Whereas if the individual understands that technology is bad from its signal and understand that
previous individuals have voted solely based on previous recommendations and no new information
then a strongly opinionated person can break the cascade.

5.2

If the technology is good then individuals would be hoping to accept the technology because the
payoff is positive as compared to negative payoff and zero payoff. But if first few individuals receive
the signal and vote for reject, thinking technology is bad and then individuals after them simply
follow previous individuals’ recommendations and using only their information about the signal,
they will all vote for reject technology and then cascade will start and it will continue if even
majority of signal after them is high. This is because lot of times, when individuals want to be correct
their efforts can lead to systematic errors such as this one where they might reject good technology,
simply because lot of information is not used as later individuals discard their signal and follow the
signal of previous individuals.