Structure, Cooperation, and the Flow of Market Information

TLDR

Information flow in markets is modeled as networks of channels (graphs) and decision‑making agents (nodes) that can either facilitate or impede transmission, and actors first assess moral hazards and social context before deciding to share information. The article investigates how individual consumer choices to share or withhold word‑of‑mouth affect overall market information flow. Using a modified Marshall Sahlins social‑exchange framework, the authors test the decision process in two laboratory experiments and simulate its aggregate effects. The study shows that the interaction between individuals and their social context is crucial for understanding word‑of‑mouth dynamics.

Abstract

This article explores the potential impact of individual consumer decisions to transmit or withhold word-of-mouth information on the flow of information in a market. Information flow is examined in networks composed of graphs and nodes, where graphs represent channels that foster information flow and nodes represent sentient decision makers who can potentially impede or foster information flow. We assert that actors in embedded markets first judge the moral hazards imposed by the information they consider for transmission and the social context of transmission, and then moderate their decisions to transmit the information in light of these judgements. We analyze this process using a modified version of Marshall Sahlins's social exchange theory, examine the plausibility of this analysis using two laboratory experiments, and explore the consequences of this behavior at the aggregate level using a computer simulation. Our view highlights the importance of the interplay of individuals and their social context for understanding word-of-mouth processes.