Innovation Adoption by Forward-Looking Social Learners
72 Pages Posted: 18 Feb 2015
Date Written: February 16, 2015
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
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