The Legal Analyst: A Toolkit for Thinking about the Law

By Ward Farnsworth | Go to book overview

14 Cascades

You have job interviews with two employers and are turned down in both of them. At the next one you are asked if you have had any prior interviews. You recount your unhappy recent history, and the employer concludes that the two prior rejections probably meant something. This helps him decide to pass on you. The process continues and accelerates from there; the next interviewer finds you have three rejections and has even more cause for concern than the previous one.51 The process can work in reverse, too: a job candidate gets offers, and the offers create interest on the part of others. Or change the scene of the pattern: everyone wants to go to a particular university because it’s hard to get in; from this they infer that it must be excellent—and the inference gets stronger the more times it is drawn, because now admission becomes more difficult still. Crowded restaurants may create the same pattern, and uncrowded restaurants the opposite one; likewise when people conclude that a movie probably is good because so many are going to see it—so they go see it themselves and strengthen the same perception by others. Or a street performer attracts a small gathering. The group gets larger as people with low curiosity thresholds come to see what’s going on. Then the crowd really grows as people with normal thresholds see a mass of spectators converging on the sidewalk and can’t resist investigating what the fuss is about. The same can happen with decisions about nearly anything. People are unsure whether a diet, a new medicine, a tonsillectomy, or a circumcision create enough health benefits to make them worthwhile; or they aren’t sure how many children to have. They rely on what others seem to be thinking, and then others rely on what they seemed to think. And so on.

These all are possible examples of information cascades. Notice that all the parties to them may be rational. If you feel uncertain about something, it might make sense to defer to others who seem sure; maybe they know more than you do. And if the next player likewise has no firm basis for decision, it might be entirely reasonable for him to see the growing agreement, find it impressive, and go along. But whether reasonable or not, the result is that the belief gains empty momentum: there is growth in its

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The Legal Analyst: A Toolkit for Thinking about the Law
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Acknowledgments xi
  • Part I - Incentives 1
  • 1 - Ex Ante and Ex Post 3
  • 2 - The Idea of Efficiency 13
  • 3 - Thinking at the Margin 24
  • 4 - The Single Owner 37
  • 5 - The Least Cost Avoider 47
  • 6 - Administrative Cost 57
  • 7 - Rents 66
  • 8 - The Coase Theorem 75
  • Part II - Trust, Cooperation, and Other Problems for Multiple Players 85
  • 9 - Agency with Eric Posner 87
  • 10 - The Prisoner's Dilemma 100
  • 11 - Public Goods 109
  • 12 - The Stag Hunt 117
  • 13 - Chicken 126
  • 14 - Cascades 136
  • 15 - Voting Paradoxes 144
  • 16 - Suppressed Markets with Saul Levmore 152
  • Part III - Jurisprudence 161
  • 17 - Rules and Standards 163
  • 18 - Slippery Slopes with Eugene Volokh 172
  • 19 - Acoustic Separation 182
  • 20 - Property Rules and Liability Rules 188
  • 21 - Baselines 198
  • Part IV - Psychology 207
  • 22 - Willingness to Pay and Willingness to Accept- The Endowment Effect and Kindred Ideas 209
  • 23 - Hindsight Bias 218
  • 24 - Framing Effects 224
  • 25 - Anchoring 230
  • 26 - Self-Serving Bias, with a Note on Attribution Error 237
  • Part V - Problems of Proof 247
  • 27 - Acoustic Separation 249
  • 28 - Standards of Proof 257
  • 29 - The Product Rule 273
  • 30 - The Base Rate 281
  • 31 - Value and Markets 294
  • Notes 305
  • Author Index 329
  • Subject Index 335
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