In this paper, we study information cascades on graphs. In this setting, each
node in the graph represents a person. One after another, each person has to
take a decision based on a private signal as well as the decisions made by
earlier neighboring nodes. Such information cascades commonly occur in practice
and have been studied in complete graphs where everyone can overhear the
decisions of every other player. It is known that information cascades can be
fragile and based on very little information, and that they have a high
likelihood of being wrong.
Generalizing the problem to arbitrary graphs reveals interesting insights. In
particular, we show that in a random graph G(n,q), for the right value of
q, the number of nodes making a wrong decision is logarithmic in n. That
is, in the limit for large n, the fraction of players that make a wrong
decision tends to zero. This is intriguing because it contrasts to the two
natural corner cases: empty graph (everyone decides independently based on his
private signal) and complete graph (all decisions are heard by all nodes). In
both of these cases a constant fraction of nodes make a wrong decision in
expectation. Thus, our result shows that while both too little and too much
information sharing causes nodes to take wrong decisions, for exactly the right
amount of information sharing, asymptotically everyone can be right. We further
show that this result in random graphs is asymptotically optimal for any
topology, even if nodes follow a globally optimal algorithmic strategy. Based
on the analysis of random graphs, we explore how topology impacts global
performance and construct an optimal deterministic topology among layer graphs
