In this paper we analyze consumption behavior of individuals making their choices on the basis of a unique source of information, represented by other people's experience. In fact, when individuals purchase a new product or a service for the first time, they cannot rely on their own previous direct experience and they rather form their preferences basing on information that are available from the experience of previous adopters. Our aim is to analyze the effect of diffusion and communication of others' experience on individual behavior, a situation that been modeled (see Bikhchandani, Hirshleifer and Welch 1992; Bannerjee 1992) and experimentally tested (see Anderson and Holt 1997) depicting some important phenomena, such as information cascades. Our experimental design is different; it is based on Arthur-Lane model of information contagion in a setting where individuals do not have full information on previous adopters choices, but only on a sample. The experimental design is based on a sequential-choice model of over 160 subjects who are asked to choose between two alternatives products (e.g. cellular phones, internet providers, etc.). Any subject gets a random sample of informants communicating the alternative chosen and the performance of the product they experienced. In the paper we discuss some preliminary results of the relationship between individual heuristics and the diffusion of others' experience. In particular, we show that the number of available information and the presence of consumption externalities seem to affect individual behavior and collective efficiency.

Co-author Enrico Zaninotto