What is an informational cascade?
A) An excess flow of market information that makes it difficult for an investor to form a rational decision.
B) A continual decline in the quality of market information from public sources due to sequential budget cuts.
C) A continual increase in the quality of market information from public sources due to broader use of the internet by market participants.
D) A sequence of decisions based on the actions of others rather than fundamental information.

Question

Quizplus · Accepted Answer

An informational cascade occurs when individuals make decisions based on the actions of others, rather than on fundamental information. It happens because people tend to follow the crowd and believe that others have better information than they do, leading to a kind of herd mentality. This can result in arbitrary or incorrect decisions being made, as individuals may ignore their own information to follow the actions of others.

What Is an Informational Cascade