Three essays on opinion leadership and social networks

This is a collection of essays related to opinion leaders, consumers who exert disproportionate influence on the purchase decisions of other consumers. In Essay 1, I model opinion leaders’ influence by an economic model in which each consumer in a social network makes once-in-a-lifetime choice between a new product and an outside option. Through this model, I find that opinion leaders potentially wield huge influence. In fact, if the consumers believe a priori that the new product is better than the outside option but only moderately so, a bad recommendation of the new product from the opinion leader is sufficient to stop further new-product adoption, resulting in consumers imitating each others’ outside-option purchases in a cascade of behavior. But the reverse phenomenon of imitative purchase of the new product occurs under more restricted conditions, suggesting a reason why negative word of mouth (WOM) often has more impact than positive WOM. Following these conclusions, in Essay 2, I describe an experiment designed to find empirical support for purchase cascades. I create theoretically predicted cascades successfully under all experimental conditions, and find evidence of increasing occurrence of cascades as the game proceeds. A major challenge in many WOM marketing campaigns is the cost-effective identification of opinion leaders, but empirical studies can agree on few consumer characteristics that are strong predictors of opinion leadership. In Essay 3, I attempt to explain these null or weak findings through a game-theoretic perspective on opinion leader-follower relationships. I find that opinion leaders who purchase with certainty at the beginning of the game emerge whenever certain general conditions regarding network structure and consumer time preferences are met; moreover, counter-intuitively, these opinion leaders might not be the consumers with the lowest time discount factors, suggesting that opinion leaders are not “born” but “made”