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A non-standard approach to a market with boundedly rational consumers and strategic firms. Part I: A microfoundation for the evolution of sales

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  • Christina Matzke, Benedikt Wirth

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    Abstract

    In our model, individual consumers follow simple behavioral decision rules based on imitation and habit as suggested in consumer research, social learning, and related fields. Demand can be viewed as the outcome of a population game whose revision protocol is determined by the consumers' behavioral rules. The consumer dynamics are then analyzed in order to explore the demand side and first implications for a strategic supply side.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse10_2008.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse10_2008.

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    Length: 23
    Date of creation: May 2008
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse10_2008

    Contact details of provider:
    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

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    Keywords: bounded rationality; social learning; population game; mean dynamic;

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    1. Sandholm, William H., 2005. "Excess payoff dynamics and other well-behaved evolutionary dynamics," Journal of Economic Theory, Elsevier, vol. 124(2), pages 149-170, October.
    2. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    3. Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February.
    4. 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.
    5. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 612-43, August.
    6. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
    7. K. Schlag, 2010. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Levine's Working Paper Archive 454, David K. Levine.
    8. Herbert Simon & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
    9. Karl H. Schlag, 1995. "Why Imitate, and if so, How? A Bounded Rational Approach to Multi-Armed Bandits," Discussion Paper Serie B 361, University of Bonn, Germany, revised Mar 1996.
    10. Michel BenaÔm & J–rgen W. Weibull, 2003. "Deterministic Approximation of Stochastic Evolution in Games," Econometrica, Econometric Society, vol. 71(3), pages 873-903, 05.
    11. Abhijit Banerjee & Drew Fudenberg, 2010. "Word of Mouth Learning," Levine's Working Paper Archive 723, David K. Levine.
    12. Smallwood, Dennis E & Conlisk, John, 1979. "Product Quality in Markets Where Consumers are Imperfectly Informed," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 1-23, February.
    13. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    14. Polli, Rolando & Cook, Victor, 1969. "Validity of the Product Life Cycle," The Journal of Business, University of Chicago Press, vol. 42(4), pages 385-400, October.
    15. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
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