“But the emperor has nothing on!”

Last week we discussed the information cascade, where people make their decisions based on the choices of others even though it may contradict their own information signal. We also discussed how such cascades are fragile.
I read about information cascades some more on Wikipedia and under the ‘See also’ section I saw a link to the fairy tale ‘The emperor’s new clothes.’ The story portrays an information cascade well. The emperor is told by two dudes that they will make him the best suit out of the best cloth, which is invisible to anyone who is intellectually unfit. For fear of appearing stupid, the emperor pretends he can see it. And when the emperor parades around the city, his constituency also pretends to see the suit even though he is quite naked. Each person bases his choice on the choices of the people around him, which is mutually reinforcing and persists the pretense. The story also portrays the fragility of information cascades, when a child exclaims “But the emperor has nothing on!” and quickly breaks the charade.