The telecommunications bubble of the late 1990s began with a genuine transformation—the rapid early growth of Internet traffic—but became a costly information cascade when companies treated an exceptional growth rate as a lasting fact. The ensuing investment in capacity, driven by shared expectations even as traffic growth slowed, left much of the industry exposed when the bubble burst. In the book, the episode shows how collective decisions can go badly wrong when people follow conventional wisdom instead of judging the evidence independently.

Growth Becomes Conventional Wisdom

In the Internet’s early days, traffic was growing at a rate of 1,000 percent a year. Beginning around 1996, that growth slowed dramatically, as the book notes was to be expected. Yet the headline figure endured: “1,000 percent” had become conventional wisdom, and the changing rate went unnoticed.

Telecommunications companies responded to the expectation of continued explosive growth by investing tens, and eventually hundreds, of billions of dollars in the capacity they believed would be needed to carry it. The danger lay not in building for a transformative technology as such, but in mistaking an early growth rate for a reliable forecast of what would come next.

The Cascade Takes Hold

As the expectation spread, investing came to seem compulsory. At the time, not investing appeared tantamount to suicide. Even people who doubted that the anticipated traffic would materialize faced the insistence of those around them that it would. Decisions therefore became less a matter of independent assessment than of responding to a shared conviction.

The book presents the episode as an information cascade: a few influential ideas or expectations can shape the choices of many, while those choices in turn make the initial belief appear more credible. When decisions are made this way, people are not reaching independent conclusions from their own information. They are influenced, sometimes profoundly, by the decisions and confidence of others. The telecommunications industry’s construction boom became one of the book’s clearest examples of that mechanism at work.

Collapse and Its Lesson

The conventional wisdom was seriously questioned only after the bubble burst. By then, most telecommunications companies were either bankrupt or on the verge of going out of business. The scale of the investment had turned misplaced expectations about future demand into an industry-wide vulnerability.

The episode complicates any simple faith in collective judgment. A group is more likely to make a sound decision when its members bring diverse opinions, decide independently, and rely on private information; a cascade undermines those conditions. The bubble’s history is thus not simply a warning against imitation, which can often be useful, but a demonstration of the risk in treating other people’s confidence as evidence when a shared assumption has ceased to fit changing facts.