What are the basic difference between herding and information cascade?
An example of herding would be when the market decides to sell a stock because they see that the stock is being sold. Basically, they just sell because other people are selling. They are not selling because they have information that warrant a sell. It is considered to be irrational behavior. Information cascade is similar to herding but it’s rational. For example, if you know someone who is very skilled at evaluating stocks and he decides to sell the stock of a certain company, this behavior will trickle down to other investors who will also sell the stock. In this case, they are not selling because others are selling, they are selling because the analyst provided information to the market that selling was warranted based on his analysis of the stock. This is why it is called information cascade.
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