Now, what makes an item popular to begin with? We can break this down into two distinct factors. The first one is intrinsic value. You may enjoy certain music, or buy a particular product simply, because you like or need it, regardless whether the rest of the world agrees or not. So we say that what your doing is going to be independent of what others think. The second class, is network effect, so, we can have intrinsic value, affecting the popularity of a product, and also network effect, which affects popularity of a product. So the network effect, is that in many instances, your decision's is going to depend upon what others do. For one of two reasons. First, the fact that others like your product, is naturally going to give you some information about it's quality, appeal, and other factors. This leads to what's known as the fallacy of the crowds, which is the exact opposite of what we just discussed, and the wisdom of clouds in the context of Amazon and Netflix. And here the wisdom of crowds is going to break down, because we no longer have that independent assumption. [SOUND] Because, people are influenced by the crowd. So, what this means is that, if, if you remember this image from the videos in Amazon we, we said that the opinions of a large number of people, is going to be greater than the opinion of any single person. But, what happens is when all these opinions are made public. So when, this person's opinions is going to influence everyone else's, and this person's opinion's also is going to influence everyone else's, and so forth. They, are going to end up coming up with something that's dependent upon each others' opinions. And, in the worst case, they're all going to formulate the exact same opinion. And therefore this is going to be in the extreme case, no greater than any one of their opinions might be. The specific type of fallacy crowds were going to study here is, information cascade where we going to see that people are going to ignore their own private information, in favor of what the public actions are doing. The second part of network effect that's going to influence the popularity of a product. Make a product more popular, is that, the value of a service or product may depend upon the number of people that are using it. A good example of this, is a fax machine. Because it becomes more useful as more and more people are able to accept faxes, so the more people that have fax machines, the more likely you would be to buy one. The same thing with Wikipedia. Because Wikipedia, is the whole idea of crowd-source generation of content and crowd-source editing. So, Wikipedia is going to become richer with knowledge, as more entries are written. So, you're more likely to use Wikipedia, the more people that are on it and editing it. And this is an example of the positive network effect, right? So where something actually becomes better because more people are using it. And in the other case, the network effect, where others' people, others' opinions are giving you information. Leading to an information cascade. An information cascade, we can see. Could either be a good or a bad thing, right? So, everybody could be following the truth or everybody could be following something that's not necessarily true. But in any case, the key point is that intrinsic value could lead to higher popularity of a product. Network effects could lead to higher popularity of a product in two ways. The first one is that other people may follow the crowd, in terms of the information cascade. So if they if they see more and more people doing something, they're more likely to do it themselves. And the second way is through the positive network effect. Just saying that the amount of people using something, is going to direct the influence of how likely someone is, to purchase it. Because it's going to have a higher value. So, our focus on the rest of this lecture, is going to be on the fallacy of the crowds. Specifically we're going to study an example of information cascade, to see why it may occur. But keep in mind that we do not have a definite answer, as to which model, if any, is going to fit reality sufficiently well. So, again, in this lecture, we're going to see a large gap between the theory of things like fallacy of the crowds and information cascade, and the practice of things like what makes a YouTube video go viral. [BLANK_AUDIO]
