Advertising as a Distortion of Social Learning
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.
|Date of creation:||14 Nov 2006|
|Contact details of provider:|| Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway|
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"High and Declining Prices Signal Product Quality,"
808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
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Levine's Working Paper Archive
1193, David K. Levine.
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- Albrecht, James & Lang, Harald & Vroman, Susan, 2002. "The effect of information on the well-being of the uninformed: what's the chance of getting a decent meal in an unfamiliar city?," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 139-162, February.
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