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Word-of-mouth interaction and the organization of behaviour

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We present a discrete choice model based on agent interaction. The framework combines the features of two well-known models of word-of-mouthcommunication (Ellison and Fudenberg, 1995 and Bala and Goyal, 2001).Interaction structure is a regular periodic lattice with decision-makers interacting only with immediate neighbours. We investigate the long-runequilibrium) behaviour of the resulting system and show that for a largerange of initial conditions clustering in economic behaviour emerges andpersists inde?nitely. The setup allows for the analysis of multi-option environments. For these environments we derive the distribution of optionpopularity in equilibrium.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2011-11.

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Date of creation: Jun 2011
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Handle: RePEc:fce:doctra:1111

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Keywords: word-of-mouth; inertia; clustering; choice.;

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  1. Rafael Rob & Arthur Fishman, 2005. "Is Bigger Better? Customer Base Expansion through Word-of-Mouth Reputation," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1146-1175, October.
  2. Carlos Arnade & Munisamy Gopinath & Daniel Pick, 2008. "Brand Inertia in U.S. Household Cheese Consumption," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(3), pages 813-826.
  3. Karl H. Schlag, . "Why Imitate, and if so, How? A Bounded Rational Approach to Multi- Armed Bandits," ELSE working papers 028, ESRC Centre on Economics Learning and Social Evolution.
  4. Morten Ravn & Stephanie Schmitt-Grohé & Mart�n Uribe, 2006. "Deep Habits," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 195-218.
  5. Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Working papers 96-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
  7. Ulrich Witt, 2006. "Evolutionary Economics," Papers on Economics and Evolution 2006-05, Max Planck Institute of Economics, Evolutionary Economics Group.
  8. K. Schlag, 2010. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Levine's Working Paper Archive 454, David K. Levine.
  9. Chintagunta, Pradeep & Kyriazidou, Ekaterini & Perktold, Josef, 2001. "Panel data analysis of household brand choices," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 111-153, July.
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