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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 test the implications of a simple model of social learning in which the consumption decisions of individuals depend on information they receive from their peers. The model predicts 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 theater 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 38% 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 to movie quality.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13832.

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Date of creation: Mar 2008
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:13832

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Cited by:
  1. Enrico Moretti, 2008. "Social Learning and Peer Effects in Consumption: Evidence from Movie Sales," NBER Working Papers 13832, National Bureau of Economic Research, Inc.
  2. Lacetera, Nicola & Macis, Mario & Mele, Angelo, 2014. "Viral Altruism? Generosity and Social Contagion in Online Networks," IZA Discussion Papers 8171, Institute for the Study of Labor (IZA).
  3. Gordon Dahl & Stefano DellaVigna, 2007. "Does Movie Violence Increase Violent Crime?," Levine's Working Paper Archive 122247000000001778, David K. Levine.
  4. Jordi McKenzie & W. Walls, 2013. "Australian films at the Australian box office: performance, distribution, and subsidies," Journal of Cultural Economics, Springer, vol. 37(2), pages 247-269, May.
  5. Ziebarth, N. R.; & Schmitt, M.; & Karlsson, M.;, 2013. "The short-term population health effects of weather and pollution: implications of climate change," Health, Econometrics and Data Group (HEDG) Working Papers 13/34, HEDG, c/o Department of Economics, University of York.
  6. Giacomo De Giorgi & Michele Pellizzari, 2013. "Understanding Social Interactions: Evidence from the Classroom," NBER Working Papers 19202, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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.
  9. Ohio University & Department of Economics & Hailey Hayeon Joo, 2009. "Social Learning and Optimal Advertising in the Motion Picture Industry," 2009 Meeting Papers 513, Society for Economic Dynamics.

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