| This dissertation is an examination of how consumers' decision-making is influenced by the choices of those around them. This research focuses on decision-making in the arena of health care choice by examining the health plan choices of University of California at Davis employees from 1997--2003. Three possible underlying consumer behaviors are described that would give rise to situations of interdependent choice: (1) consumers can use the observed pattern of choices around them as measures of brand quality signals, (2) consumers can use the observed choices of others to reduce their information search costs in the future by taking advantage of the positive externalities of a larger network, and (3) consumers can rely on word-of-mouth or conversations with others to influence their own choices. Focusing primarily on the first two explanations, this paper applies two choice models to employee choice data to show that consumer decisions are, in fact, significantly influenced by the choices of those in their social network. First, the data are analyzed using a reduced-form model that imposes few restrictions on the data to examine the impact of social influence, cost, individual demographics and histories on choices. Next, a detailed behavioral model is presented that examines these same influences in a more structural manner. Both models demonstrate that even allowing for the influence of many other variables, it is evident that social network connections have a significant impact on people's choices in the health care arena. |
