Cascade effects in heterogeneous populations

We present a model of sequential choice which explains the emergence and persistence of unpopular, inefficient behavioral norms in society. We model individuals as naïve Bayesian norm followers, rational agents whose subjective expected utility is increased by adherence to an established norm. Agents use Bayesian reasoning to combine their private preferences and prior beliefs with empirical observations of others' decisions. When agents must infer the preferences of others from observation, this can result in negative cascades, causing the majority of agents to choose a dispreferred action (because they believe, incorrectly, that they are following the majority preference). We demonstrate that negative cascades can result even when the degree of conformity is relatively low, and under a wide range of conditions (including heterogeneity in preferences, priors, and impact of public opinion). This allows us to present a general model of how rational norm-following behavior can occur, and how unpopular norms might emerge, in real populations with heterogeneous preferences and beliefs.