WORD-OF-MOUTH COMMUNICATION AND SOCIAL-LEARNING

This paper studies the way that word-of-mouth communication aggregates the information of individual agents. We find that the structure of t he communication process determines whether all agents end up making i dentical choices, with less communication making this conformity more likely. Despite the players' naive decision rules and the stochastic d ecision environment, word-of-mouth communication may lead all players to adopt the action that is on average superior. These socially effici ent outcomes tend to occur when each agent samples only a few others.