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August 09, 2011


Jimmy Hill

I think this is a fair summary.

However, some of the explanation is missing. There are plenty of deprived, powerless and angry people. Why are these particular people rioting and looting?

I think Danny Finkelstein has a good go at the missing ingredient here: http://t.co/xCStYIb

Finally (and somewhat connected to Finkelstein's point) there are some people that just like violence and destruction and riots solve the coordination problem of indulging in this type of behaviour without consequence. To argue, as I have seen some do, that only socially excluded people riot therefore all the rioters must be socially excluded is to already have assumed your conclusion.

Luis Enrique

so it may make sense to say that the S&P downgrade 'caused' the sell off, in the sense of being a catalyst, and that the S&P downgrade had nothing to do with the sell off, in the sense that those selling share are worried about anything but the US government's credit rating.


Jimmy Hill

To be fair, isn't that what this whole article is about?


In any case, doesn't Finkelstein's explanation run into the same problem?

Ok, so young are more prone to violence. This seems to be true. But why are young men only in specific areas causing havoc? Why isn't it universal anarchy in the UK?

Chris suggests information cascades, and to me this seems to be a reasonably solid explanation.

Jimmy Hill

You're right Bob, Finkelstein doesn't explain it all, he just adds another layer.

My question is why do some people react to these information cascades and others don't, when they are equally marginalised, alienated etc. ?

I'm assuming there are some poor people who are marginalised that have not rioted.


@ Jimmy Hill. Information cascades explain why some rioted and some didn't. It's all about the heterogeneity of private signals. Some people's private signals ("rioting's wrog", "I'll get caught") were strong enough to offset the cue provided by others' rioting. Other's private signals weren't so strong.

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I say so because of a recent paper by Klaus Adam and Albert Marcet, who show how only a very small information cascade can generate significant asset price volatility. This suggests that small changes in the extent to which we use public signals versus private information might lead to quite large changes in behaviour.

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