The fine art industry is a difficult one to be in. It’s an even more difficult business to succeed at. There are many factors that may affect the success of artists, but one factor many may not have considered is information cascades. Information cascades are a phenomenon in which people often rely on the opinion of others to determine how they feel about something. This is not a phenomenon confined to the art market, however. It is something that can be observed in many different arenas, including the stock market (think about the eruption of meme stocks during 2020 and 20201) and the housing market. More recently, we have seen this phenomenon in full force as NFT art sales sky-rocketed (alongside crypto coin valuations in general–WAGMI), driven by the mimetic inclinations of individuals and fueled by the hyper-interconnectivity of social platforms. But let’s explore what, specifically, information cascades are—sticking to the traditional art market—and how they affect artists in a very real, tangible way.
According to the economist David Hirshleifer, “an informational cascade occurs when the information implicit in predecessors’ actions is so conclusive that a rational follower will unconditionally imitate them, without regard to information from other sources.” (The Blind Leading the Blind: Social Influence, Fads, and Informational Cascades) These cascades, he goes on, “often spontaneously develop on the basis of very little information. People converge upon one action quite rapidly, and their decisions are idiosyncratic.”
But why does this happen? Because, according to Hirschleifer, “…low-precision decision makers imitate high-precision ones,” and “…the tendency to imitate high-prestige individuals may be based on a belief that high-prestige individuals are well-informed decisionmakers.”
In the traditional art world, information cascades have been observed and clearly defined by researchers. According to a model described by Philip Crossland and Faye Smith (in Value Creation in Fine Arts: A System Dynamics Model of Inverse Demand and Information Cascades), “there are three types of potential customers that are most likely to recognize the value of the artwork based on their knowledge of exogenous information, and their prior purchases of artwork. The first group to recognize the value is cognoscenti, such as museum curators. A second set of customers is investors, who purchase art for its potential monetary appreciation. We expect that investors will be less knowledgeable about the aesthetic or technical quality of the artwork, but that they will recognize (and follow) the decision behaviors of cognoscenti. A third set of customers is private, wealthy collectors, who purchase artwork for their personal collections, and who appreciate the artwork for its intrinsic value.”
“An information cascade occurs from the cognoscenti to the investors and collectors,” they continue. “This, in turn, generates the demand queue…”
This model tracks precisely with what has become the prevailing method for art world success. Artists spend the emerging period of their career focusing on capturing the attention and esteem of the cognoscenti (often at extreme personal cost—the cognoscenti offer artists little in the way of fiscal rewards.) This period is followed (hopefully!) by the attention of investors (speculators) who take cues from the cognoscenti and (again, hopefully!) begin collecting the artist’s work and producing signals which the final tier in the information cascade—wealthy collectors—use to make purchase decisions. (It should be noted that speculation is driven by individuals whose primary interest lays in profiting off the work of artists by buying low and selling high. They often lead signaling efforts themselves in order to drive up the value of their collections, which they promptly offload at significant gains. Artists rarely profit directly from this kind of speculation.)
While this particular cascade can certainly lead to incredible rewards for artists, it also poses significant risks, particularly due to investors. The investment market can easily drive prices to levels that disassociated from intrinsic value, causing bubbles that will eventually burst (because they always do.) Artists can find themselves left in the lurch, then, with a devalued body of work, and few collectors willing to purchase it. (This is something we’ll likely observe in the NFT art sale market. Stay tuned.)
As mentioned earlier, information cascades present themselves in many different arenas, with different agents taking on the various hierarchical roles in the information chain. And what that means is that artists do not need to feel constrained by one particular approach to increasing the value of their work (like the traditional model we explored above.) Instead, by being active and strategic, artists can take advantage of information cascades in other ways—they may even be able to design a cascade of their own and do so in a way that leads to more successful outcomes.
This information cascade is one of the most fascinating and important phenomena in the development of an art career. For many, it is a phenomenon they have no control over. Instead, their success comes at the whims of others who dictate their work’s value. It’s high time artists take command and take charge of the way their value is communicated. Their long-term success may depend on it.
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Nick Thornburg is a multidisciplinary artist and writer. Subscribe to his mailing list to keep up-to-date with upcoming features and other news.
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