Tuesday, 18 March 2008

Information cascades and eating on holiday

Just a quick follow-up on the Dan Ariely lecture last night. He had a very good way of explaining information cascades (and how apparently 'popular' choices could be based on very little information). He gave the example of when you are trying to choose a restaurant to eat in on holiday. If there are two places to eat in a popular tourist spot, but neither has people in it, the first person to choose will make an uninformed choice. However the next tourist to choose will see that one restaurant has one person in it, and the other has no-one in it. So he will likely choose the former. The third tourist will see one restaurant with two people in it and one with no people in it, and again is likely to choose the more popular option. After this has taken place several times one restaurant will look very popular and the other will not. Yet this very clear trend is not based on relevant information (ie quality of the food), but rather is simply the result of the uninformed decisions of the first person to choose.

Worrying innit?

3 comments:

Charlie Marks said...

Not if you own the "popular" restaurant!

Tom P said...

THere must be a way of using this to our advantage... (not financially!)

Charlie Marks said...

I'm not sure I'd be happy to capitalise on such instinctive thinking. It strikes me though that if there are two restaurants and one is significantly cheaper than the other choice might depend upon affordability. Also if one is a well-known chain restaurant tourists might opt for it over an unknown?

My problem with the example given is that it assumes that the second and third tourists are acting on "popularity" over other, unmentioned factors such as those I've given.

With regard to the near-run on HBOS this week, am I alone in thinking the supposed manipulation is a ruse - the Bank of England's plan to rescue the financial sector? It would seem like the best way of preventing more Northern Rock-type scenarios playing out, no? Punters think: oh, it's just a hoax, nothing to worry about...