Markets, Social Networks, and Endogenous Preferences

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WHAT IS IT?

This model generalizes the Bell’s ``Locally interdependent preferences in a general equilibrium environment’’ (JEBO, 2002). It models the interaction between a market, endogenous preferences, and a social network.

HOW IT WORKS

The agents consume two kinds of goods (e.g. black and white t-shirts) which are comparable, i.e. their total consumption has a natural meaning (how many t-shirts an agent consumes). In every period, all agents get an initial endowment of each good. Then they trade these goods with each other at the centralized market at the market clearing price. The agents’ preferences evolve over the time: each agent increases her preference for the good that has been recently more popular (i.e. more consumed) in her neighborhood. Her neighborhood consists of the agent herself and the agents she has relationship with. The set of all relationships in the population forms a social network.

HOW TO USE IT

You can either set parameters yourself, or use prearranged scenarios. Then pres SETUP button and then GO button. Observe.

THINGS TO NOTICE

Notice there are four possible outcomes of the simulations:

  1. the system does not converge at all
  2. the system converges but the agents’ preferences are not polarized
  3. the system converges, the agents’ preferences are polarized, but only the abundant good is consumed
  4. the system converges, the agents’ preferences are polarized, and both goods are consumed

There might or might not be clusters of the agents with the same preferences in equilibrium.

While the market negative feedback mechanism forces the relative price to unity, the bandwagon positive feedback increases the demand for the abundant good, increasing its relative price, and possibly making the agents only to consume the abundant good and throw the other good away.

THINGS TO TRY

Try prearranged scenarios. They cover some of the possible interesting results.

EXTENDING THE MODEL

I’m sorry I won’t suggest anything. I’ve got some ideas but I’d like to save them for a future paper. ;-)

NETLOGO FEATURES

The model uses links.

RELATED MODELS

The model is based on Bell’s model, see below.

CREDITS AND REFERENCES