Dear Team,
I have a question regarding the difference between information cascade and herding, as I didn’t get the difference between them.
Thanks in advance.
They are confusing it’s true. read some papers from berkley.edu if you want to dig deeper
Herding is when you follow others and necessarily ignore your private information
Cascading is based on beliefs: when you often ignore your information and you observe the group and make identical decision as the group and cascading implies a herd but herd not necessarily is cascade
i.e. You know the stock is a good pick but there is fire sale and you sell “herding”
I feel that a herd is when you follow the market even though you have no reason to follow it (i.e everyone is selling so I am selling too).
A cascade is when a well informed person makes an investment decision, this decision trickles down the market and everyone starts buying or selling. Herding has no real basis whereas information cascade has one.
These are not formal definitions but they help me remember what they mean.
Many thanks for the clarification, now I got the difference.