Fads and imperfect information

Nicholas Janetos
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Nicholas Janetos: Penn Wharton Budget Model

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: A fad is something that is popular for a time, then unpopular. For example, in the 1960s tailï¬ ns on cars were popular, in the 1970s they were not. I study a model in which fads are driven through the channel of imperfect information. Some players have better information about past actions of other players, and all players have preferences for choosing the same actions as well-informed players. In equilibrium, better informed (high-type) players initially pool on a single action choice. Over time, the low-type players learn which action the high-type players are pooling on, and start to mimic them. Once a tipping point is reached, the high-type players switch to a dfferent action, and the process repeats. I explicitly compute equilibria for a speciï¬ c parameterization of the model. Low-type players display instrumental preferences for conformity, choosing actions which appear more popular, while high-type players sometimes coordinate on actions which appear unpopular. Improving the quality of information to low-type players does not improve their payoffs, but increases the rate at which high-type players switch between actions.

Keywords: Fads; social norms (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2017-05-01, Revised 2017-05-01
New Economics Papers: this item is included in nep-gth and nep-mic
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