Informational cascades: A test for rationality?

I report on joint work with A. Baltag, Z. Christoff and J.U. Hansen in [3], based on our investigation of the decision processes of individuals that lead to the social herding phenomenon known as informational cascades. The question we address in our paper deals with whether rational agents who use their higher-order reasoning powers and who can reflect on the fact that they are part of an informational cascade, can ultimately stop the cascade from happening. To answer this question we use dynamic epistemic logic to give a complete analysis of the information flow in an informational cascade, capturing the agent’s observations, their communication and their higher-order reasoning power. Our models show that individual rationality isn’t always a cure that can help us to stop a cascade. However, other factors that deal with the underlying communication protocol or that focus on the reliability of agents in the group, give rise to conditions that can be imposed to prevent or stop an informational cascade from happening in certain scenarios.