Innovation Adoption by Forward-Looking Social Learners

72 Pages Posted: 18 Feb 2015

See all articles by Mira Frick

Mira Frick

Yale University - Cowles Foundation

Yuhta Ishii

Centro de Investigación Económica, ITAM

Date Written: February 16, 2015

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).

Keywords: Innovation adoption, Social learning, Poisson bandits, Informational free-riding

JEL Classification: D81, D83, O33

Suggested Citation

Frick, Mira and Ishii, Yuhta, Innovation Adoption by Forward-Looking Social Learners (February 16, 2015). Cowles Foundation Discussion Paper No. 1988. Available at SSRN: https://ssrn.com/abstract=2565769 or http://dx.doi.org/10.2139/ssrn.2565769

Mira Frick

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Yuhta Ishii (Contact Author)

Centro de Investigación Económica, ITAM ( email )

Camino a Santa Teresa No. 930
Col. Héroes de Padierna
Ciudad de México
Mexico

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