When does a crowd stop revealing information?
Bikhchandani, Hirshleifer and Welch showed how observing earlier actions can lead later decision makers to set aside their own private signals.
Inside this model
A hidden state is equally likely red or blue. Each independent clue is correct with the chosen probability. At each turn an agent compares the public likelihood from earlier actions with their clue likelihood, chooses the more likely state, and follows their clue on a tie. The public belief is updated from the probability of that action under each state; once both possible clues produce the same choice, the action conveys no new clue.
Out in the world
A practical use
Early reviews can influence later buyers so strongly that later choices add little fresh evidence about product quality.
A useful lens. Not a universal law.
- Agents have common knowledge of clue accuracy, act to maximize correctness, and never communicate the clues themselves. Real social learning is more varied.
Associated thinkers
Further reading
Explore the original research or the teaching reference behind this experiment.
Bikhchandani, Hirshleifer and Welch — A Theory of Fads, Fashion, Custom, and Cultural Change ↗