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Advertising as a Distortion of Social Learning

Author

Listed:
  • Brekke Kjell Arne

    (Ragnar Frisch Centre of Economic Research and Department of Economics, University of Oslo, k.a.brekke@econ.uio.no)

  • Rege Mari

    (University of Stavanger, mari.rege@uis.no)

Abstract

By 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.

Suggested Citation

  • Brekke Kjell Arne & Rege Mari, 2007. "Advertising as a Distortion of Social Learning," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-18, October.
    • Handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:38
    DOI: 10.2202/1935-1704.1374
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    Cited by:

    1. Habiba Elbardai, 2025. "Towards a clarification of soft-sell and hard-sell advertising approaches: study of French consumer perceptions," Post-Print hal-04952622, HAL.
    2. Loginova, Oksana, 2009. "Exposure order effects and advertising competition," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 528-538, August.
    3. Brekke, Kjell Arne & Nilssen, Tore, 2015. "Media competition enhances new-product entry: On the market for fake observations," Information Economics and Policy, Elsevier, vol. 31(C), pages 59-66.
    4. Bingsheng Liu & Wenwen Zhu & Yinghua Shen & Yuan Chen & Tao Wang & Fengwen Chen & Maggie Wenjing Liu & Shi‐Hao Zhou, 2022. "A study about return policies in the presence of consumer social learning," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2571-2587, June.
    5. Oksana Loginova, 2008. "Exposure Order Effects and Advertising Competition," Working Papers 0806, Department of Economics, University of Missouri.

    More about this item

    Keywords

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    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; Personnel Economics - - Marketing and Advertising - - - Advertising

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