ECONOMICS WORKING PAPERS Credibility and Strategic Learning in Networks

This paper studies a model of diffusion in a fixed, finite connected network. There is an interested party that knows the quality of the product or idea being propagated and chooses an implant in the network to influence other agents to buy or adopt. Agents are either “innovators”, who adopt immediately, or rational. Rational consumers buy if buying rather than waiting maximizes ∗This is a substantially revised version of an earlier paper with the title “Word of Mouth Advertising, Credibility and Learning in Networks”. We are very grateful to the editor, Hanming Fang, two referees, Drew Fudenberg, Sanjeev Goyal, Matt Jackson, Gilat Levy, various seminar audiences and Parikshit Ghosh for helpful comments on earlier versions of the paper. We thank Chun-Ting Chen for research assistance with the Appendix and Pathikrit Basu for drawing the diagrams. Chatterjee thanks the Human Capital Foundation (http://www.hcfoundation.ru/en/), and especially Andrey Vavilov, for financial support to the Penn State Department of Economics and the Richard B. Fisher Endowment for making his Membership at the Institute for Advanced Study possible for 2014-15.