Sunday, May 23, 2010

Phenomenon of the day: Information Cascade

In 1995, management gurus Michael Treacy and Fred Wiersema secretly purchased 50,000 copies of their business strategy book The Discipline of Market Leaders from stores across the nation. The stores they purchased from just happened to be the ones whose sales are monitored to select books for the New York Times bestseller list. Despite mediocre reviews, their book made the bestseller list. Subsequently, the book sold well enough to continue as a bestseller without further demand intervention by the authors.' Presumably, being on a bestseller list helps a book sell more because consumers and reviewers learn from the actions of previous buyers.

Source: Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades. Sushil Bikhchandani, David Hirshleifer, Ivo Welch. The Journal of Economic Perspectives, Vol. 12, No. 3 (Summer, 1998), pp. 151-170.

A System perspective note: by hacking the detection system, which was supposed to identify bestsellers, the authors managed to activate a desirable control scenario.

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