Fashions, Habits and Changing Preferences: Simulation of Psychological Factors A€ecting Market Dynamics

Markets can show di€erent types of dynamics, from quiet markets dominated by one or few products, to markets with constant penetration of new and reintroduced products. This paper explores the dynamics of markets from a psychological perspective using a multi-agent simulation model. The behavioural rules of the arti®cial consumers, the consumats, are based on a conceptual meta-theory from psychology. The arti®cial consumers have to choose each period between similar products. Products remain in the market as long as they maintain a minimum level of market share, else they will be replaced by a new product. Assuming a population of consumats with di€erent preferences, and social networks, the model simulates adoption of new products for alternative assumptions on behavioural rules. Furthermore, the consequences of changing preferences and the size of social networks are explored. Results show that the behavioural rules that dominate the arti®cial consumer's decision making determine the resulting market dynamics, such as fashions, lock-in and unstable renewal. Results also show the importance of psychological variables like social networks, preferences and the need for identity to explain the dynamics of markets.