Adjustment and social choice

TL;DR

This paper explores how information spread influences decision-making in social networks, revealing that adjustment processes can lead to persistent fluctuations and cycles in market behavior.

Contribution

It introduces a cellular automata model to analyze how agents' adjustment dynamics and contagion effects cause non-convergent, oscillatory market outcomes.

Findings

Large amplitude fluctuations occur during adjustment processes.

Slow adjustment relative to contagion induces periodic market cycles.

Market shares can oscillate without reaching equilibrium.

Abstract

We discuss the influence of information contagion on the dynamics of choices in social networks of heterogeneous buyers. Starting from an inhomogeneous cellular automata model of buyers dynamics, we show that when agents try to adjust their reservation price, the tatonement process does not converge to equilibrium at some intermediate market share and that large amplitude fluctuations are actually observed. When the tatonnement dynamics is slow with respect to the contagion dynamics, large periodic oscillations reminiscent of business cycles appear.