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

David Lane ()
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David Lane: University of Modena

Computing in Economics and Finance 1996 from Society for Computational Economics

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.

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