Let us consider the model of information cascades.Assume that the probability that the state is Good (G) is p = 1/2.The probability of a High signal given a Good state is q = 2/3. Theprobability of a Low signal given a Bad state is q = 2/3. Rememberthat each person observes a signal and the choices (but not thesignals) of all those who chose before him. Each person choosesbetween Accept (A) and Reject (R). Suppose that you are the tenthperson to make a choice and you have observed that everyone beforeyou chose R, that is, we are in an R-cascade.
(a)
OR
OR