A new NBER paper [pdf] from Enrico Moretti finds that films which outperform expectations on their opening week continue to outperform expectations - but not if the outperformance was the result of weather. The effect is stronger for previously unknown films about which audience has weak preconceptions:

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 is the Moretti who studied peers at work with a huge database of scanner information from a supermarket, finding that when fast workers are sitting behind you and looking at your back, you also work fast. When fast workers are sitting in front of you and facing away from you, you don’t bother. So there’s a peer effect, and it seems to be driven by embarassment or fear rather than inspiration. (More on this research in The Logic of Life, or here.)

March 10th, 2008 in Everyday economics, Logic of Life | Permalink