Multidimensional Observational Learning in Social Networks: Theory and Experimental Evidence

• Published in: Information systems research 2021-09, Vol.32 (3), p.876-894
• Main Authors: Qiu, Liangfei, Chhikara, Arunima, Vakharia, Asoo
• Format: Article
• Language: English
• Subjects: Consumer behavior; Consumers; Decision analysis; Digital media; Incentives; Information sharing; Learning; Motivation; multidimensional observational learning; Product differentiation; Retailing; Retailing industry; Social networks; social ties
• ISSN: 1047-7047; 1526-5536
• DOI: 10.1287/isre.2021.0993

The unprecedented growth of social network users in the last decade has resulted in significant increases in the availability of individual-specific information such as holiday pictures, mobile check-ins at restaurants, and information on everyday purchases. Consumers shopping through social network channels are increasingly using this information in making their purchase decisions. We find that social ties impact the magnitude of observational learning. In the case of strangers, the effect of learning is stronger for vertically differentiated products than for horizontally differentiated products; whereas in the case of friends, the effect of learning for vertically differentiated products is similar to that for horizontally differentiated products. Moreover, the type of product impacts the magnitude of observational learning. For horizontally differentiated products, the effect of learning from friends is stronger than that from strangers; whereas for vertically differentiated products, the effect of learning from friends is similar to that from strangers. These findings provide motivation for online retailers to generate alternative strategies for increasing product sales through social networks. For example, online retailers offering horizontally differentiated products have strong incentives to cooperate with social media platforms (e.g., Instagram and Pinterest) in encouraging customers to share their purchase information. The prevalence of consumers sharing their purchases on social media platforms (e.g., Instagram and Pinterest) and the use of this information by potential future consumers have substantial implications for online retailing. In this study, we examine how product characteristics and the type of information provider jointly impact purchase decisions in a social network setting. We first propose an analytical observational learning framework integrating the impact of product differentiation and social ties. Then, we use two experimental studies to validate our analytical results and provide additional insights. Our key findings are that the effect of learning from strangers is stronger for vertically differentiated products than for horizontally differentiated products. However, the effect of learning from friends does not depend on whether the underlying product is horizontally or vertically differentiated. What is more interesting is the nuanced role of social ties: For horizontally differentiated products, the effect of learning inc