Fashions, habits and changing preferences: Simulation of psychological factors affecting market dynamics

Markets can show different types of dynamics, from quiet markets dominated by one or few products, to markets with constant penetration of new and rei ntroduced products. This paper explores the dynamics of markets from a psyc hological perspective using a multi-agent simulation model. The behavioural rules of the artificial consumers, the consumats, are based on a conceptua l meta-theory from psychology. The artificial consumers have to choose each period between similar products. Products remain in the market as long as they maintain a minimum level of market share, else they will be replaced b y a new product. Assuming a population of consumats with different preferen ces, and social networks, the model simulates adoption of new products for alternative assumptions on behavioural rules. Furthermore, the consequences of changing preferences and the size of social networks are explored. Resu lts show that the behavioural rules that dominate the artificial consumer's decision making determine the resulting market dynamics, such as fashions, lock-in and unstable renewal. Results also show the importance of psycholo gical variables like social networks, preferences and the need for identity to explain the dynamics of markets. (C) 2001 Elsevier Science B.V. All rig hts reserved.