Information Cascades in the Adoption of New Technology

This work presents a theory of information cascades, based on the work of Bikhchandi, Hirschleifer, and Welch (1992), to explain fad-like behavior in the adoption of new technology. An information cascade occurs when an individual ignores his or her own private signal about the value of a technology and relies, instead, upon the observed actions of others. This can lead to serious problems if the observed actions in question are based on still other observed actions rather than private signals. The present research provides an operational model to assess information cascade theory and empirically tests the model in the context of the adoption of electronic commerce technologies. The results suggest that information cascades play a large role in the adoption of such technologies.