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Advertising as a Distortion of Social Learning
By Brekke, Kjell Arne and Mari Rege
Memorandum 23/2006
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Abstract |
By combining a theory of herding behavior with the phenomenon of availability heuristic,
this paper shows that non-informative advertisements can a¤ect people?s choices by in?uencing
their perception of product quality. We present a model in which people can learn about
product quality by observing the choices of others. Consumers are, however, not able to fully
distinguish between the observations of real people and ?ctitious characters in advertisements.
Even if a person is aware of this limitation and updates his beliefs accordingly, it is still rational
for him to choose the product he has observed most often. In equilibrium the most observed
product is always most likely to be of the highest quality. The analysis has important policy
implications. |
| JEL Classification:
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D21, L15, M37 |
| Keywords:
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Advertising, availability heuristic, herding behavior, information, product quality |
| Project:
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8101 Advertising and Competition in Markets with Network Externalities
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