Word of mouth and feedback loops

Monday, August 11, 2008

The courtyard of the Pleasance at the Ediinburgh fringe is a great place to observe the impact of feedback loops in shaping consumer preferences.

Social learning and blockbuster movies

Monday, March 10, 2008

by Geoff Riley

When was the last time you saw a great movie and just wanted to tell your friends about it and perhaps go with them second time around? Or perhaps you have just sat through two hours of unbelieveable tedium (wake up those of you who watched Brokeback Mountain) and cannot wait to fire off a poor review at IMDB!

Why is it that some films with huge marketing budgets can end up being total flops whilst other films with meagre backing from distributors turn out to be box office hits (or perhaps DVD hits when released onto that market?) Part of the answer must lie in the social interactions between movie goers and their friends. The positive or negative feedback that we hear about a film can often play a big part in our own decision about whether or not to go see it. The same is true for hotels, restaurants, plays and other live events. Over at the Undercover Economist blog today, Tim Harford flags up some new research from Enrico Moretti from the Department of Economics at the University of California, Berkeley. His new working paper has the intriguing title “Social Learning and Peer Effects in Consumption: Evidence from Movie Sales” and can be downloaded as a pdf file here

Moretti finds that

“Overall, social learning appears to be an important determinant of sales in the movie industry, accounting for 38% of sales for the typical movie with positive surprise. This implies the existence of a large “social multiplier’’ such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand to movie quality.”

Moretti defines social learning as a situation where consumers in week t update their prior based on feedback from others who have seen the movie in previous weeks. Much depends on whether the perceived quality of the movie is higher or lower than our expectations when we take our seat in the theatre.

Can you add any more films to my list of great films for economists?

Posted to AS Micro • Behavioural Economics
Tags: demand, feedback, social learning
1 comment so far. Permalink

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