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Word-of-Mouth Communication and Social Learning

Glenn Ellison and Drew Fudenberg
The Quarterly Journal of Economics
Vol. 110, No. 1 (Feb., 1995), pp. 93-125
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2118512
Page Count: 33
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Word-of-Mouth Communication and Social Learning
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Abstract

This paper studies the way that word-of-mouth communication aggregates the information of individual agents. We find that the structure of the communication process determines whether all agents end up making identical choices, with less communication making this conformity more likely. Despite the players' naive decision rules and the stochastic decision environment, word-of-mouth communication may lead all players to adopt the action that is on average superior. These socially efficient outcomes tend to occur when each agent samples only a few others.

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