Word-of-mouth interaction and the organization of behaviour

Abstract

We present a discrete choice model based on agent interaction. The framework combines the features of two well-known models of word-of-mouthcommunication (Ellison and Fudenberg, 1995 and Bala and Goyal, 2001).Interaction structure is a regular periodic lattice with decision-makers interacting only with immediate neighbours. We investigate the long-runequilibrium) behaviour of the resulting system and show that for a largerange of initial conditions clustering in economic behaviour emerges andpersists inde?nitely. The setup allows for the analysis of multi-option environments. For these environments we derive the distribution of optionpopularity in equilibrium.word-of-mouth, inertia, clustering, choice.