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Is what is good for each good for all? Individual rationality and social efficiency in an information contagion model

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  • David Lane

    (University of Modena)

Abstract

When new competing products enter a market, a variety of informational and structural mechanisms may play a role in determining the market shares that each product will obtain. In this talk, I introduce a class of models designed to elucidate one such mechanism: the feedback introduced through private information-gathering about product quality carried out by prospective purchasers querying previous purchasers. Theoretical and computational analysis of these models reveals that the way in which purchasers assimilate the information they obtain can have strong effects on ultimate market structure. In particular, some decision rules will lead to more efficient social outcomes (that is, higher market share for a superior product) than will Bayesian optimization. In addition, more information at the individual level need not lead to better outcomes at the aggregate level. Experimental results shedding light on these phenomena will be reviewed and techniques for analyzing these results will be discussed.

Suggested Citation

  • David Lane, "undated". "Is what is good for each good for all? Individual rationality and social efficiency in an information contagion model," Computing in Economics and Finance 1996 _033, Society for Computational Economics.
    • Handle: RePEc:sce:scecf6:_033
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    1. Narduzzo, Alessandro & Warglien, Massimo, 1996. "Learning from the Experience of Others: An Experiment on Information Contagion," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 5(1), pages 113-126.
    2. Bassan, Bruno & Scarsini, Marco, 1995. "On the value of information in multi-agent decision theory," Journal of Mathematical Economics, Elsevier, vol. 24(6), pages 557-576.
    3. Glenn Ellison & Drew Fudenberg, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 93-125.
    4. Arthur, W. Brian & Lane, David A., 1993. "Information contagion," Structural Change and Economic Dynamics, Elsevier, vol. 4(1), pages 81-104, June.
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