Anderson, Lisa R. and Charles A. Holt. "Classroom Games: Information Cascades."Journal of Economic Perspectives 10 (Fall 1996) 187-193.
The classroom exercise demonstrates how initial economic predictions can change the expectations of an entire group. This experiment will require a coin, three nontransparent drinking cups, three identical marbles of one color, and three identical marbles of another color. Two marbles of one color (blue for example) will be placed in one of the drinking cups along with one marble of the other color (red for example). This cup will be referred to as "Urn A". The remaining marbles (two red and one blue) will bed placed in another cup which will be called "Urn B". The instructor will then flip a coin to select one of the urns. For example, heads could correspond to Urn A being selected, while tails would mean that Urn B would be chosen. The result of this coin toss should be kept a secret from the students. The contents of the chosen urn should then be transferred to the third cup, out of sight of the students. The exercise can then begin in earnest. The instructor will call students, one at a time, to the front of the classroom in random order. The selected student, with back facing the rest of the class, chooses one marble from the cup. It should be stressed that only the persons to know the color of the marble are the instructor and the person doing the choosing. The student will be asked to predict which urn was chosen 5 seconds after choosing their marble (so that hesitation will not have an influence on others). The marble will then be replaced and the process is continued. After each student has made her prediction, the urn that was chosen will be revealed to the class. One finds that after the first two students have made their predictions, students tend to conform to this forecast regardless of the color of their marble. Lisa Anderson and Charles Holt call this the "information cascade" effect. This effect in economics everywhere form predictions on inflation to consumer purchases.