Social Reinforcement: Cascades, Entrapment, and Tipping

The choices made by different individuals can reinforce each other. Network externalities provide an obvious example. Explanations for Microsoft’s domination of the operating system market, eBay’s domination of the online auction market, and the permanence of the QWERTY keyboard layout have been based on network effects. The rapid growth in popularity of social networking sites such as Facebook and MySpace also illustrates the importance of social reinforcement. People join because their friends have already done so. In his theory of entrapment, Avinash Dixit (2003) exploits reinforcing effects of people’s choices to show how some may be entrapped into joining a club in spite of the fact that its existence makes them worse off. There is an early precedent for the importance of social reinforcement in the work of Harvey Leibenstein (1950). Citing, as a precedent, the work of John Rae (1834), Leibenstein analyses situations in which one’s demand for a good increases with the number of others also buying it, using the term “bandwagon effects” to describe such situations. This is an early theory of fads and fashions, and is based on the recognition that other people’s actions can reinforce one’s own choices. Thomas Schelling’s (1978) work on tipping exemplifies the same insights. His iconic example