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Follow the Leader: Steady State Analysis of a Dynamic Social Network

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Abstract

A social pyramid is show to be the unique steady state social structure when agents gain utility from being early adopters of subsequently popular trends. The environment is related to a majority game, but introduces the importance of the timing of adoption. Utility derived from making a popular choice independent of timing is demonstrated as essential to support the hierarchy. The proposed environment is relevant to a number of settings in which leadership and timing of decisions are important or where being perceived as a trend setter is rewarded. The leadership position can be self-reinforcing. For a professional critic, for example, a cult-of personality can dictate popular tastes, such as in art, food, and wine markets. A social hierarchy can also apply to the introduction of new products or ideas including academic research and financial market analysts.

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File URL: http://www.finance.uts.edu.au/research/wpapers/wp158.pdf
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Bibliographic Info

Paper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 158.

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Length: 24
Date of creation: 01 Jan 2009
Date of revision:
Handle: RePEc:uts:wpaper:158

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Keywords: dynamic network; social interaction; consumer choice;

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  1. David Goldbaum, 2008. "Follow the Leader: Simulations on a Dynamic Social Network," Working Paper Series 155, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  2. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-11, May.
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  7. Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Mizrach, Bruce & Weerts, Susan, 2009. "Experts online: An analysis of trading activity in a public Internet chat room," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 266-281, May.
  9. Branch, William A. & McGough, Bruce, 2008. "Replicator dynamics in a Cobweb model with rationally heterogeneous expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 65(2), pages 224-244, February.
  10. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
  11. Brock, William A & Durlauf, Steven N, 2001. "Discrete Choice with Social Interactions," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 235-60, April.
  12. Topa, Giorgio, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 261-95, April.
  13. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  14. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
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