Working Paper: NBER ID: w13832
Authors: Enrico Moretti
Abstract: Using box-office data for all movies released between 1982 and 2000, I test the implications of a simple model of social learning in which the consumption decisions of individuals depend on information they receive from their peers. The model predicts different box office sales dynamics depending on whether opening weekend demand is higher or lower than expected. I use a unique feature of the movie industry to identify ex-ante demand expectations: the number of screens dedicated to a movie in its opening weekend reflects the sales expectations held by profit-maximizing theater owners. Several pieces of evidence are consistent with social learning. First, sales of movies with positive surprise and negative surprise in opening weekend demand diverge over time. If a movie has better than expected appeal and therefore experiences larger than expected sales in week 1, consumers in week 2 update upward their expectations of quality, further increasing week 2 sales. Second, this divergence is small for movies for which consumers have strong priors and large for movies for which consumers have weak priors. Third, the effect of a surprise is stronger for audiences with large social networks. Finally, consumers do not respond to surprises in first week sales that are orthogonal to movie quality, like weather shocks. Overall, social learning appears to be an important determinant of sales in the movie industry, accounting for 38% of sales for the typical movie with positive surprise. This implies the existence of a large "social multiplier'' such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand to movie quality.
Keywords: social learning; peer effects; movie sales; box office; consumer behavior
JEL Codes: J01; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| opening weekend demand exceeds expectations (positive surprise) (R22) | subsequent sales increase (D40) |
| opening weekend demand is below expectations (negative surprise) (R22) | sales decline (L81) |
| positive surprises in opening weekend sales (P17) | slower declines in sales over time (L81) |
| surprise impact greater for movies with diffuse priors (D80) | stronger social learning (C92) |
| larger social networks (Z13) | stronger social learning (C92) |
| marginal effect of learning declines over time (J24) | concave sales trajectory for positive surprises and convex for negative surprises (D80) |
| weather shocks (Q54) | no significant effect on later sales (M31) |