DP16789 Dispersed Behavior and Perceptions in Assortative Societies

Author(s): Mira Frick, Ryota Iijima, Yuhta Ishii
Publication Date: December 2021
Programme Areas: Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16789

We formulate a model of social interactions and misinferences by agents who neglect assortativity in their societies, mistakenly believing that they interact with a representative sample of the population. A key component of our approach is the interplay between this bias and agents' strategic incentives. We highlight a mechanism through which assortativity neglect, combined with strategic complementarities in agents' behavior, drives up action dispersion in society (e.g., socioeconomic disparities in education investment). We also show how the combination of assortativity neglect and strategic incentives may help to explain empirically documented misperceptions of income inequality and political attitude polarization.