Information cascades occur when individuals make decisions based on the observations of others rather than their own private information, leading to a collective behavior that may not reflect the true underlying value of an asset. This phenomenon can cause a ripple effect where early movers influence later adopters, creating a domino effect in decision-making. It plays a significant role in various financial contexts, including how investors react to market signals, how firms manage their investor relations, and the dynamics involved in mergers and acquisitions.
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