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When a series of individuals with private information announce public predictions, initial conformity can create an "information cascade" in which later predictions match the early announcements. This paper reports an experiment in which private signals are draws from an unobserved urn. Subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws. If initial decisions coincide, then it is rational for subsequent decision makers to follow the established pattern, regardless of their private information. Rational cascades formed in most periods in which such an imbalance occurred. (JEL C92, D8)In many economic situations, agents ob-arnples and some simple models of the cascade serve private signals of some underlying state process. They point out that the conformity of and make public decisions. Subsequent deci-followers in a cascade contains no informasion makers face a dilemma if their own ~r i -tional value. and in this sense. the cascade is vate signal is indicative of a state tha; is fragile and can be upset by the arrival of new unlikely given the previously observed deci-public information. sions. An "information cascade' ' occurs whenAs indicated above, an information cascade initial decisions coincide in a way that it is can result from rational inferences that others' optimal for each of the subsequent individuals decisions are based on information that domto ignore his or her private signals and follow inates one's own signal. Particularly interestthe established pattern. For example, suppose ing is the possibility of a reverse cascade; the that a worker is not hired by several potential initial decision makers are unfortunate to obemployers because of poor interview perfor-serve private signals that indicate the incorrect mances. Knowing this, an employer ap-state, and a large number of followers may join proached subsequently may not hire the the resulting pattern of "mistakes," despite worker even if the employer's own assess-the fact that their private signals are more ment is favorable, since this information may likely to indicate the correct state.' Even a be dominated by the unfavorable signals qualified worker will sometimes make a bad inferred from previous rejections.' sushi1 impression in an interview, and a series of Bikhchandani et al. (1992) discuss other ex-rejections can create a reverse cascade that eliminates many future job opportunities.'Cascade-like behavior might also arise in fiw nancial markets, where trading decisions come

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