Fashion, fads and the popularity of choices: Micro-foundations for diffusion consumer theory

Jean-Francois Mercure ()

Structural Change and Economic Dynamics, 2018, vol. 46, issue C, 194-207

Abstract: Knowledge acquisition by consumers is a key process in the diffusion of innovations. However, in standard theories of the representative agent, agents do not learn and innovations are adopted instantaneously. Here, we show that in a discrete choice model where utility-maximising agents with heterogenous preferences learn about products through peers, their stock of knowledge on products becomes heterogenous, fads and fashions arise, and transitivity in aggregate preferences is lost. Non-equilibrium path-dependent dynamics emerge, the representative agent exhibits behavioural rules different than individual agents, and aggregate utility cannot be optimised. Instead, an evolutionary theory of product innovation and diffusion emerges.

Keywords: Diffusion of innovations; Micro-foundations; Consumer theory; Discrete choice theory (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:46:y:2018:i:c:p:194-207

DOI: 10.1016/j.strueco.2018.06.001

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