NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Social Learning and Selective Attention

Andrew Caplin, John Leahy, Filip Matějka

NBER Working Paper No. 21001
Issued in March 2015
NBER Program(s):Economic Fluctuations and Growth

Popularity is self reinforcing. The attention garnered by popular options propels further interest in them. Yet rather than blindly follow the crowd, most pay attention to how well these items match their tastes. We model this role of social learning in guiding selective attention and market dynamics. We confirm that attention focuses on options that quickly achieve popularity. Information externalities render the chosen set smaller than socially optimal. This rationalizes antitrust policies that encourage early experimentation. When attention costs are based on Shannon entropy, optimal policies are computable. With rich data, optimal choices can be identified for all consumer types.

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Document Object Identifier (DOI): 10.3386/w21001

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