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Word-of-mouth interaction and the organization of behaviour

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Abstract

We present a discrete choice model based on agent interaction. The framework combines the features of two well-known models of word-of-mouthcommunication (Ellison and Fudenberg, 1995 and Bala and Goyal, 2001).Interaction structure is a regular periodic lattice with decision-makers interacting only with immediate neighbours. We investigate the long-runequilibrium) behaviour of the resulting system and show that for a largerange of initial conditions clustering in economic behaviour emerges andpersists inde?nitely. The setup allows for the analysis of multi-option environments. For these environments we derive the distribution of optionpopularity in equilibrium.

Suggested Citation

  • Zakaria Babutsidze & Robin Cowan, 2011. "Word-of-mouth interaction and the organization of behaviour," Documents de Travail de l'OFCE 2011-11, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1111
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    File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2011-11.pdf
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    References listed on IDEAS

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    1. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 612-643, August.
    2. Rafael Rob & Arthur Fishman, 2005. "Is Bigger Better? Customer Base Expansion through Word-of-Mouth Reputation," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1146-1175, October.
    3. Morten Ravn & Stephanie Schmitt-Grohé & Martín Uribe, 2006. "Deep Habits," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 195-218.
    4. Lones Smith & Peter Sorensen, 2000. "Pathological Outcomes of Observational Learning," Econometrica, Econometric Society, vol. 68(2), pages 371-398, March.
    5. Schlag, Karl H., 1998. "Why Imitate, and If So, How?, : A Boundedly Rational Approach to Multi-armed Bandits," Journal of Economic Theory, Elsevier, vol. 78(1), pages 130-156, January.
    6. Ulrich Witt, 2006. "Evolutionary Economics," Papers on Economics and Evolution 2006-05, Philipps University Marburg, Department of Geography.
    7. Chintagunta, Pradeep & Kyriazidou, Ekaterini & Perktold, Josef, 2001. "Panel data analysis of household brand choices," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 111-153, July.
    8. Carlos Arnade & Munisamy Gopinath & Daniel Pick, 2008. "Brand Inertia in U.S. Household Cheese Consumption," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(3), pages 813-826.
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    More about this item

    Keywords

    word-of-mouth; inertia; clustering; choice.;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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