Cognitive Efficiency of Social Networks Providing Consumption Advice on Experience Goods

Abstract

This Chapter deals with the issue of cognitive efficiency on the Internet. Cognitive efficiency refers here to the creation of chatrooms that gather individuals with homogenous preferences (but unable to recognize each other in the “real world”) and that provide relevant consumption advice on experience goods. Hence, we raise the question of the ability for individuals initially scattered on the Net to meet in homogenous chatrooms (according to taste and consumption decisions) in order to ensure informational relevance. We show that, in the simple model we propose, cognitive efficiency depends on (i) individuals’ preference patterns (especially on relative utilities between the various varieties of goods), (ii) on their requirement concerning the quality of advice they receive, and, though not specifically modelized, (iii) on the entry process in chatrooms (simultaneous or sequential, with or without mimetic behavior).