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Innovation Adoption by Forward-Looking Social Learners

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Abstract

Motivated by the rise of social media, we build a model studying the effect of an economy�s potential for social learning on the adoption of innovations of uncertain quality. Provided consumers are forward-looking (i.e., recognize the value of waiting for information), equilibrium dynamics depend non-trivially on qualitative and quantitative features of the informational environment. We identify informational environments that are subject to a saturation effect, whereby increased opportunities for social learning can slow down adoption and learning and do not increase consumer welfare. We also suggest a novel, purely informational explanation for different commonly observed adoption curves (S-shaped vs. concave).

Suggested Citation

  • Mira Frick & Yuhta Ishii, 2015. "Innovation Adoption by Forward-Looking Social Learners," Cowles Foundation Discussion Papers 1877, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1988
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d19/d1988.pdf
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    3. Osnat Zohar, 2019. "Boom-Bust Cycles of Learning, Investment and Disagreement," Bank of Israel Working Papers 2019.06, Bank of Israel.
    4. Thomas, Caroline, 2019. "Experimentation with reputation concerns – Dynamic signalling with changing types," Journal of Economic Theory, Elsevier, vol. 179(C), pages 366-415.
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    7. Aleksei Smirnov & Egor Starkov, 2022. "Bad News Turned Good: Reversal under Censorship," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 506-560, May.
    8. Gustavo Manso & Farzad Pourbabaee, 2022. "The Impact of Connectivity on the Production and Diffusion of Knowledge," Papers 2202.00729, arXiv.org.
    9. Julio A. Crego & Jin Huang, 2017. "Early Birds and Second Mice in the Stock Market," Working Papers wp2017_1717, CEMFI.
    10. Fudenberg, Drew & He, Kevin, 2021. "Player-compatible learning and player-compatible equilibrium," Journal of Economic Theory, Elsevier, vol. 194(C).
    11. Jin Huang, 2017. "To Glance or to Peruse: Observational and Active Learning from Peer Consumers," Working Papers wp2017_1716, CEMFI.
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    More about this item

    Keywords

    Innovation adoption; Social learning; Poisson bandits; Informational free-Riding;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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