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

Jean-Francois Mercure ()

Papers from arXiv.org

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.

Date: 2016-07, Revised 2018-05
New Economics Papers: this item is included in nep-cse, nep-dcm, nep-evo, nep-ino, nep-mkt and nep-upt
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Citations: View citations in EconPapers (4)

Published in Structural Change and Economic Dynamics, 2018

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Journal Article: Fashion, fads and the popularity of choices: Micro-foundations for diffusion consumer theory (2018)
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