ON THE CONVERGENCE OF INFORMATIONAL CASCADES

This paper investigates the problem of information aggregation in a sequential action model. In a model in which agents sequentially take actions after observing the action history and a private signal, an informational cascade is defined as an event in which the sequence of actions converges to a limit and a fully revealing informational cascade is defined as an event in which the sequence converges to a limit which is optimal under the true state. The necessary and sufficient condition for the occurrence of a fully revealing informational cascade almost everywhere is established. The necessary and sufficient condition is interpreted using the characterization in Milgrom [Econometrica47 (1979), 679-688] and McKelvey and Page (Econometrica54 (1986), 109-127]. Journal of Economic Literature Classification Numbers: C44. D81, D83. © 1993 Academic Press, Inc.