Information Cascade Causes a 75% Drop in UA's Stock Price

As we learned about information cascades in class, it reminded me of something that happened not too long ago.

On September 8, 2008, a glitch in Google News caused an article about United Airline's bankruptcy back in 2002 to appear on the website of South Florida Sun-Sentinel. In just minutes, United Airline's stock price dropped from $12.45 to $3. But after trading was halted for about an hour and a half, it went back up to around $11. At the end of the trading day, the stock still suffered an 11% loss.

This is a perfect example of the power of information cascades - how what seems to be "trustworthy" sources make mistakes and the information just passes on and causes a ripple effect.

Article: Google News glitch helps cause United stock selloff

This reminds me of a relatively popular scam that used to occur on the stock markets. It was called a pump and dump scheme link. A fraud company would present legitimate looking data to a group of people who were usually very susceptible to information cascades. one such group that was prone to these schemes was country club memberships where someone would become victim to this false data and would become a legitimate spokes person to the rest of the network promoting the fake stock. when this information cascade got large enough and many people in the community had purchased the stock the people running the scam would sell their shares and then the stock would eventually be removed from the market by the regulation groups. this just shows how even poeple who would be considered to be very financially savvy can fall into an information cascade just due to the persuasive power it can posses.