Advertising as a Distortion of Social Learning
AbstractBy combining a theory of herding behavior with the phenomenon of availability heuristic, this paper shows that non-informative advertisements can affect people’s choices by influencing their perception of product quality. We present a model in which people can learn about product quality by observing the choices of others. Consumers are, however, not able to fully distinguish between the observations of real people and fictitious characters in advertisements. Even if a person is aware of this limitation and updates his beliefs accordingly, it is still rational for him to choose the product he has observed most often. In equilibrium the most observed product is always most likely to be of the highest quality. The analysis has important policy implications.
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Bibliographic InfoPaper provided by Oslo University, Department of Economics in its series Memorandum with number 23/2006.
Length: 22 pages
Date of creation: 14 Nov 2006
Date of revision:
Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
More information through EDIRC
Advertising; availability heuristic; herding behavior; information; product quality;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-01 (All new papers)
- NEP-CBE-2006-12-01 (Cognitive & Behavioural Economics)
- NEP-MIC-2006-12-01 (Microeconomics)
- NEP-MKT-2006-12-01 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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