The Spread of Innovations Through Social Learning

Center on Social and Economic Dynamics Working Paper No. 43

35 Pages Posted: 29 Oct 2007

Date Written: December 2005

Abstract

Innovations often spread by the communication of information among potential adopters. In the marketing literature, the standard model of new product diffusion is generated by information contagion: agents adopt once they hear about the existence of the product from someone else. In social learning models, by contrast, an agent adopts only when the perceived advantage of the innovation - as revealed by the actions and experiences of prior adopters - exceeds a threshold determined by the agent's prior beliefs. We demonstrate that learning with heterogeneous priors generates adoption curves that have an analytically tractable, closed-form solution. Moreover there is a simple statistical test that discriminates between this type of process and a contagion model. Applied to Griliches' classic results on the adoption of hybrid corn, this test shows that learning with heterogeneous priors does a considerably better job of explaining the data than does the contagion model.

Suggested Citation

Young, H. Peyton, The Spread of Innovations Through Social Learning (December 2005). Center on Social and Economic Dynamics Working Paper No. 43, Available at SSRN: https://ssrn.com/abstract=1024819 or http://dx.doi.org/10.2139/ssrn.1024819

H. Peyton Young (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States

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