Innovation Diffusion among Case-based Decision-makers

Abstract: This paper analyzes a model of innovation diffusion with case-based individuals a la Gilboa and Schmeidler (1995,1996,1997), who decide whether to consume an incumbent or a new product based on their and their social neighbors' previous consumption experiences. I analyze how diffusion pattern changes with individual characteristics, innovation characteristics and social network. In particular, radical innovation leads to higher initial speed but lower acceleration compared to increment innovation. Social network with stronger overall social tie, lower degree of homophily or higher exposure of reviews from early adopters speed up diffusion of innovation.