CFDP 1988R

Innovation Adoption by Forward-Looking Social Learners

Author(s): 

Publication Date: February 2015

Revision Date: August 2020

Pages: 53

Abstract: 

We build a model studying the effect of an economy’s potential for social learning on the adoption of innovations of uncertain quality. Provided consumers are forward-looking (i.e., recognize the value of waiting for information), we show how quantitative and qualitative features of the learning environment affect observed adoption dynamics, welfare, and the speed of learning. Our analysis has two main implications. First, we identify environments that are subject to a “saturation effect,” whereby increased opportunities for social learning can slow down adoption and learning and do not increase consumer welfare, possibly even being harmful. Second, we show how differences in the learning environment translate into observable differences in adoption dynamics, suggesting a purely informational channel for two commonly documented adoption patterns—S-shaped and concave curves.

Keywords: Innovation adoption, Social learning, Informational free-riding, Strategic experimentation, Exponential bandits

JEL Classification Codes:  D81, D83, O33

See CFDP Version(s): CFDP 1988