An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him, to hollow the behavior of the preceding person without regard to his own information. Among the phenomena that can be explained by informational cascades are conformism at specific times and places, error-prone behavior, and fragility of behaviors.

Facilitation of Competing Bids and the Price of a Takeover Target Abstract Initially uninformed bidders must incur costs to learn their (independent) valuations of a potential takeover target. The first bidder makes either a preemptive bid that will deter the second bidder from investigating, or a lower bid that will induce the second bidder to investigate and possibly compete. We show that the expected price of the target may be higher when the first bidder makes a deterring bid than when there is competitive bidding. Hence, by weakening the first bidder’s incentive to choose a preemptive bid, regulatory and management policies to assist competing bidders may reduce both the expected takeover price and social welfare.

The model examines the underlying spot market determinants of hedging and risk premia. The analysis takes into account spot market clearing, quantity and price variability, stock market portfolio opportunities, diverse output distributions of producers, demand and supply shocks, and supply response to demand shifts. Hedging positions are related to the correlation and relative sensitivity of producers' outputs to the environment. Futures price bias arises from a variety of sources. Demand price elasticity affects the risk premium when output is variable; supply price elasticity when demand is variable. Income elasticity raises the premium, and fixed costs of futures market participation raise the absolute magnitude of bias.