On the Optimality and Predictability of Cultural Markets with Social Influence

TL;DR

This paper demonstrates that in trial-offer markets, ranking products by quality under social influence leads to predictable, efficient, and optimal outcomes, challenging the notion that social influence increases market unpredictability.

Contribution

It proves that quality-based ranking policies ensure market predictability and optimality under social influence in trial-offer markets.

Findings

Market converges to a monopoly of the highest quality product.

Quality ranking outperforms other policies in identifying blockbusters.

Social influence can enhance market predictability and efficiency.

Abstract

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.