Institutional Affiliation: CERGE-EI
Information about this author at RePEc
NBER Working Papers and Publications
|March 2015||Social Learning and Selective Attention|
with Andrew Caplin, John Leahy: w21001
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.