Social influence is ubiquitous in cultural markets, from book recommendations in Amazon, to song popularities in iTunes and the ranking of newspaper articles in the online edition of the New York Times to mention only a few. Yet social influence is often presented in a bad light, often because it supposedly increases market unpredictability.
Here we study a model of trial-offer markets, in which participants try products and later decide whether to purchase. We consider a simple policy which ranks the products by quality when presenting them to market participants. We show that, in this setting, market efficiency always benefits from social influence. Moreover, we prove that the market converges almost surely to a monopoly for the product of highest quality, making the market both predictable and asymptotically optimal. Computational experiments confirm that the quality ranking policy identifies “blockbusters” in reasonable time, outperforms other policies, and is highly predictable. These results indicate that social influence does not necessarily increase market unpredicatibility. The outcome really depends on how social influence is used.
On the Optimality and Predictability of Cultural Markets with Social Influence
Pascal Van Hentenryck, Andres Abeliuk, Franco Berbeglia, Gerardo Berbeglia