A Theory of Fads,Fashion,Custom,and Cultural Change as Informational Cascades Sushil Bikhchandani,David Hirshleifer, and Ivo Welch University of California,Los Angeles An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him,to follow the behavior of the preceding individual without regard to his own in- formation.We argue that localized conformity of behavior and the fragility of mass behaviors can be explained by informational cas- cades. Let them alone:they be blind leaders of the blind.And if the blind lead the blind,both shall fall into the ditch. [Matthew 15:14] I.Introduction One of the most striking regularities of human society is localized conformity.Americans act American,Germans act German,and Indi- We thank Daniel Asquith,Christopher Barry,Gary S.Becker,Michael J.Brennan, Colin Camerer,Darrell Duffie,Robert Ellickson,Dan Friedman,Stephen J.Gould, Jack Hirshleifer,David Hull,Timur Kuran,Steve Lippman,John Mamer,Hubert Markl,Robert May,David Nachman,Jonathan Paul,Tom Philipson,Ivan P.L.Png, Thomas Schelling,Max Steuer,Sheridan Titman,Gordon Tullock,the editor,two anonymous referees,the members of the Rational Choice seminar at the University of Chicago,and seminar participants at University of California,Berkeley,Hebrew University,Jerusalem,the National Bureau of Economic Research,National Taiwan University,Northwestern University,the University of Pittsburgh,and the University of Utah for helpful comments and discussions.Parts of this paper subsume parts of an earlier paper,"Sequential Sales,Path Dependence,and Cascades"(September 1989 version)by Welch. [Journal of Polirical Ecomomy,1992.vol.100.no.5] 1992 by The University of Chicago.All rights reserved.0022-3808/92/0005-0001$01.50 992