The Enthusiastic Few, Peer Effects and Entrapping Bandwagons

36 Pages Posted: 10 Mar 2007

See all articles by Yves Breitmoser

Yves Breitmoser

European University Viadrina Frankfurt (Oder) - Institute of Microeconomics

Jonathan H. W. Tan

Nottingham University Business School

Daniel John Zizzo

University of Queensland - School of Economics

Date Written: March 2007

Abstract

We study an economic setting where, due to payoff externalities such as peer effects or network externalities, the enthusiasm of the few entraps others to join an activity or club. Our experimental results largely support the model and its theoretical prediction of entrapment. Subjects choose to join 81% of the time. Overall 89% of the observations are consistent with quantal response equilibrium play. Entrapment indeed occurs; aggregate welfare is lower in most treatments than if no one were to join and, if welfare is measured purely in terms of individual payoffs, also lower than if everyone were to join.

Keywords: Peer effects, network externalities, bandwagons, entrapment, welfare

JEL Classification: C91, D62, H89, I12, K42

Suggested Citation

Breitmoser, Yves and Tan, Jonathan H. W. and Zizzo, Daniel John, The Enthusiastic Few, Peer Effects and Entrapping Bandwagons (March 2007). Available at SSRN: https://ssrn.com/abstract=969601 or http://dx.doi.org/10.2139/ssrn.969601

Yves Breitmoser

European University Viadrina Frankfurt (Oder) - Institute of Microeconomics ( email )

Frankfurt-Oder 15230
Germany

Jonathan H. W. Tan

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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