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Social Learning and Peer Effects in Consumption: Evidence from Movie Sales

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  • Enrico Moretti

Abstract

Using box-office data for all movies released between 1982 and 2000, I quantify how much the consumption decisions of individuals depend on information they receive from their peers, when quality is ex ante uncertain. In the presence of social learning, we should see different box-office sales dynamics depending on whether opening weekend demand is higher or lower than expected. I use a unique feature of the movie industry to identify ex ante demand expectations: the number of screens dedicated to a movie in its opening weekend reflects the sales expectations held by profit-maximizing theatre owners. Several pieces of evidence are consistent with social learning. First, sales of movies with positive surprise and negative surprise in opening weekend demand diverge over time. If a movie has better than expected appeal and therefore experiences larger than expected sales in Week 1, consumers in Week 2 update upward their expectations of quality, further increasing Week 2 sales. Second, this divergence is small for movies for which consumers have strong priors and large for movies for which consumers have weak priors. Third, the effect of a surprise is stronger for audiences with large social networks. Finally, consumers do not respond to surprises in first-week sales that are orthogonal to movie quality, like weather shocks. Overall, social learning appears to be an important determinant of sales in the movie industry, accounting for 32% of sales for the typical movie with positive surprise. This implies the existence of a large "social multiplier" such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand. Copyright 2011, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 78 (2011)
Issue (Month): 1 ()
Pages: 356-393

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Handle: RePEc:oup:restud:v:78:y:2011:i:1:p:356-393

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  1. Enrico Moretti, 2011. "Social Learning and Peer Effects in Consumption: Evidence from Movie Sales," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 356-393.
  2. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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Cited by:
  1. Enrico Moretti, 2011. "Social Learning and Peer Effects in Consumption: Evidence from Movie Sales," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 356-393.
  2. Gordon Dahl & Stefano DellaVigna, 2007. "Does Movie Violence Increase Violent Crime?," Levine's Working Paper Archive 122247000000001778, David K. Levine.
  3. Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2013. "Learning Models: An Assessment of Progress, Challenges and New Developments," Economics Papers 2013-W07, Economics Group, Nuffield College, University of Oxford.
  4. Gnidchenko, Andrey, 2013. "Зарубежные (1913-2013 Гг.) И Российские (1992-2013 Гг.) Кинофильмы: Основные Характеристики, Тенденции И Взаимосвязи
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    ," MPRA Paper 48391, University Library of Munich, Germany.

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