Discrete Choice with Social Interactions

Abstract

This paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects. We study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking. Laws of large numbers are generated in such environments. Multiplicity of equilibria in these models, which are equivalent to the existence of multiple self-consistent means for average choice behaviour, will exist when the social interactions exceed a particular threshold. Local stability of these multiple equilibria is also studied. The properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices. Finally, a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established.

Green consumers and public policy: On socially contingent moral motivation

“…There exists by now a substantial literature on the economic analysis of social sanctions (see, for example, Akerlof (1980), Lindbäck et al (1999), Brock and Durlauf (2001), Manski (2000), Lai et al (2003), Nyborg and Rege (2003a)). Rege (2003) shows that when contributions to public goods are motivated by the desire for social approval from others, multiple equilibria may result, including one in which no-one contributes and one in which everyone contributes.…”

Are starting wages reduced by an insurance premium for preventing wage decline? Testing the prediction of Harris and Holmstrom (1982)

“…We further note that Durlauf (2000 and2001) show that the individual has an effect on the group only when the relationship between the individual outcome and the group outcome is linear. As our outcome of interest of the group is the variance (and skew), rather than the mean, we should not have to worry about the reflection problem .…”

Endogenous Equilibria in Liquid Markets with Frictions and Boundedly Rational Agents

“…4 See Rocheteau and Weill (2011) for a review of applications of search-and-matching models to financial settings. 5 Binary random utility models have been inspired by Schelling (1978), Manski (1988) and McFadden (1974) and recently formalized in Brock and Durlauf (2001). A dynamic counterpart of this modeling framework can be found in Blume and Durlauf (2003).…”

“…• From a microeconomic perspective, we enrich the framework of random utility modelsà la Brock and Durlauf (2001), letting the agents update their opinion in a parallel way, i.e., their action is the consequence of a game, whose payoffs depend on the expectations on the behavior of the population.…”

“…Agents face social interactions and bounded rationality, the latter introduced following a well known strand of research: random utility models inspired by Brock and Durlauf (2001). From this point of view, we have enriched this framework, letting the agents update their opinion in a parallel way, i.e., their action is the consequence of a game whose payoffs depend on the expectations on the behavior of the population.…”