Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

Title:
Follow the Leader: Steady State Analysis of a Dynamic Social Network
Author(s): David Goldbaum
Date of publication: January 2009
Working paper number: 158
Abstract:
A social pyramid is show to be the unique steady state social structure when agents gain utility from being early adopters of subsequently popular trends. The environment is related to a majority game, but introduces the importance of the timing of adoption. Utility derived from making a popular choice independent of timing is demonstrated as essential to support the hierarchy. The proposed environment is relevant to a number of settings in which leadership and timing of decisions are important or where being perceived as a trend setter is rewarded. The leadership position can be self-reinforcing. For a professional critic, for example, a cult-of personality can dictate popular tastes, such as in art, food, and wine markets. A social hierarchy can also apply to the introduction of new products or ideas including academic research and financial market analysts.
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