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Social networks and consumer behavior: Evidence from Yelp

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  • Fe, Hao
Abstract
Estimates of the effect of social networks on consumer behavior may be biased, because social network formation is endogenous. Thus, it is hard to distinguish the impact of a social network from the impact of the factors leading to its formation. I exploit a machine learning technique to systematically search for groups of individuals who are similar to the extent that friendship variation within these groups is unlikely to be correlated with unobservables that affect the outcome. I apply the method using Yelp data to estimate the effect of social network friendship on restaurant choices. I find that compared to non-friends, social network friends are 64 percent more likely to visit the same restaurant. Additional exploration of the heterogeneous effects suggests that the social network effect takes place mostly through the information channel.

Suggested Citation

  • Fe, Hao, 2023. "Social networks and consumer behavior: Evidence from Yelp," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 1-14.
    • Handle: RePEc:eee:jeborg:v:209:y:2023:i:c:p:1-14
    DOI: 10.1016/j.jebo.2023.02.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Machine learning; Causal effects; Social networks; Consumer behavior;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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