Miers's Withdrawal, Cascades, and Information Markets
Cass's claim in his blog here yesterday was provocative because it claimed that one could discern a cascade. Most of the comments were skeptical, though I must admit that I agreed with Cass's observation - hard as it is to test empirically. The subsequent announcement by Miers of her withdrawal makes the cascade possibility yet more interesting. So here is a further claim that I cannot prove: information markets (and perhaps other methods of communication) accelerate cascades, though we may want to call this effect something other than an information cascade. Think of the position of a senator, and even of an academic or pundit or blogger (some overlap there), who sees an issue in play. Some academics gain reputation from, or are by nature, contrarian, but in most walks of life it is useful to be right. A senator normally expends political capital by backing a horse, but the expenditure is usually unprofitable if it is the wrong horse; a political commentator gains a following by predicting outcomes correctly; and even a business person or academic gains in reputation when events transpire as the person predicted. The prognosticator is said to have good judgment. In turn, if information markets are good predictors, perhaps because they aggregate information or judgment from dispersed parties in settings where many heads are indeed better than one, then one ought to look at the information markets (or proxies for them) and go along with the prediction.
And so, once Tradesports.com and other information markets predicted that Miers would not be confirmed, it was worthwhile for an observer who wished to save political capital or to be credited with good judgment to go with that flow. If the market thinks failure is 55% likely, then it might well pay for the pundit to speak as if 95% certain, so to speak. My conjecture is that a cascade-looking process can come about not so much because people are influenced by what they hear but because they want to be seen as being reliable or discerning, and so they rush to align themselves with what they think is the likely outcome. (And yes, in the long run in a rational-actor world, listeners will want to know whether the speaker outperformed information markets, but that world is a long way off.)