Fads and Hypes versus Trends

When you were talking about some new trend, you certainly heard a comment like this “That is just a hype!” And you kept wondering, if this person is right, if you are missing something, or if you should ignore this comment.

Because it’s difficult to detect trends early and require some effort in identifying signals that could turn into a trend, there is always a chance that this is just an indication of a hype, fad, or whatever you want to call it.

But how can you identify if something is a hype or a genuine trend? If we were to believe the renowned Italian film maker Federico Fellini, a hype would be this:

“Hype is the awkward and desperate attempt to convince journalists that what you’ve made is worth the misery of having to review it.” – Federico Fellini

Not necessarily our understanding of what a hype could be, but certainly good for injecting some humor into the conversation. To understand the criteria of a hype, let’s add some other terms. One to know is information cascade.

Imagine an auction for an oil contract, where multiple bidders are participating. Each of the bidders has done their own research and performed a geological survey. Most bidders came to the conclusion that there may be not much worth in the oil contract, because the geological survey brought mixed results and is generally ambivalent.

But during the bidding process one bidder goes high with the price, which lets everyone else wonder, if they have information that everyone else has missed. One other bidder starts offering an even higher price, and with that the rest also get into the game for fear of missing out. This is an irrational behavior of course, and brings us towards a bubble.

This is an information cascade, where the behavior of one participant with supposedly more information turns everyone else into imitating that behavior. This self-reinforcing behavior that is not based on real information and can sometimes be triggered by malicious actors leads to a market spike and ultimate collapse.

The information cascade is also often based on us thinking what others think, confusing it with what others know. Anticipating what others think and basing your own behavior on that is of course what the others know as well. That’s why they start thinking of what you think they think and this may lead to some funny outcomes. Everyone is looking right back at everyone else.

A fad is fueled right by such information cascades and the behaviors they trigger. If you want to separate genuine trends from fads, look at whether this is based on information or rather on behaviors. It may not be easy to not follow a hype, you may be wrong and miss a genuine trend. But dismissing a true trend as hype may put you in a disadvantageous position.

Foresight practitioners rather err on the side of following a hype, examining and probing it, than losing the opportunity for early investigation.

This article has also been published in German.

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