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Fashion, fads and the popularity of choices: micro-foundations for diffusion consumer theory

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  • Jean-Francois Mercure

Abstract

Knowledge acquisition by consumers is a key process in the diffusion of innovations. However, in standard theories of the representative agent, agents do not learn and innovations are adopted instantaneously. Here, we show that in a discrete choice model where utility-maximising agents with heterogenous preferences learn about products through peers, their stock of knowledge on products becomes heterogenous, fads and fashions arise, and transitivity in aggregate preferences is lost. Non-equilibrium path-dependent dynamics emerge, the representative agent exhibits behavioural rules different than individual agents, and aggregate utility cannot be optimised. Instead, an evolutionary theory of product innovation and diffusion emerges.

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  • Jean-Francois Mercure, 2016. "Fashion, fads and the popularity of choices: micro-foundations for diffusion consumer theory," Papers 1607.04155, arXiv.org, revised May 2018.
    • Handle: RePEc:arx:papers:1607.04155
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    3. Florian Knobloch & Hector Pollitt & Unnada Chewpreecha & Vassilis Daioglou & Jean-Francois Mercure, 2017. "Simulating the deep decarbonisation of residential heating for limiting global warming to 1.5C," Papers 1710.11019, arXiv.org, revised May 2018.
    4. J.-F. Mercure & A. Lam & S. Billington & H. Pollitt, 2018. "Integrated assessment modelling as a positive science: private passenger road transport policies to meet a climate target well below 2 ∘C," Climatic Change, Springer, vol. 151(2), pages 109-129, November.

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