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Online Social Interactions: A Natural Experiment on Word of Mouth Versus Observational Learning

55 Pages Posted: 8 Nov 2009 Last revised: 22 Jun 2014

Yubo Chen

Tsinghua University - School of Economics & Management

Qi Wang

Binghamton University

Jinhong Xie

University of Florida - Warrington College of Business Administration

Date Written: March 2010

Abstract

Consumers’ purchase decisions can be influenced by others’ opinions, i.e., word-of-mouth (WOM), and/or others’ actions, i.e., observational learning. While information technologies are creating increasing opportunities for firms to facilitate/manage these two types of social interaction, researchers so far have encountered difficulty in disentangling their competing effects and have provided limited insights into how these two social influences may differ from and interact with each other.

Based on a unique natural experimental setting resulting from information policy shifts at the online seller Amazon.com, we design three longitudinal, quasi-experimental field studies to examine three issues regarding the two types of social interaction: (1) their differential impact on product sales, (2) their lifetime effects, and (3) their interaction effects. An intriguing finding is that, while negative WOM is more influential than positive WOM, positive observational learning information significantly increases sales but negative observational learning information has no effect. This suggests that reporting consumer purchase statistics can help mass-market products without hurting niche products. Our results also reveal that the sales impact of observational learning increases with WOM volume.

Keywords: Social Interactions, Social Influences, Observational Learning, Information Cascade, Herd Behavior, Word of Mouth, Natural Experiment

JEL Classification: C93, D83, L15, L86, M37

Suggested Citation

Chen, Yubo and Wang, Qi and Xie, Jinhong, Online Social Interactions: A Natural Experiment on Word of Mouth Versus Observational Learning (March 2010). Available at SSRN: https://ssrn.com/abstract=1501843 or http://dx.doi.org/10.2139/ssrn.1501843

Yubo Chen (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Qi Wang

Binghamton University ( email )

PO Box 6001
P.O.Box 6000
Binghamton, NY 13902
United States

Jinhong Xie

University of Florida - Warrington College of Business Administration ( email )

209 Bryan Hall Campus Box 117155
Gainesville, FL 32611-7166
United States
352-392-0161 Ext. 1233 (Phone)
352-846-0457 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/xie/Xie_DirectoryProfile.htm

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