Dispersed Behavior and Perceptions in Assortative Societies

Mira Frick (), Ryota Iijima () and Yuhta Ishii ()
Additional contact information
Mira Frick: Cowles Foundation, Yale University
Ryota Iijima: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/ryota-iijima

No 2128, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Motivated by the fact that people's perceptions of their societies are routinely incorrect, we study the possibility and implications of misperception in social interactions. We focus on coordination games with assortative interactions, where agents with higher types (e.g., wealth, political attitudes) are more likely than lower types to interact with other high types. Assortativity creates scope for misperception, because what agents observe in their local interactions need not be representative of society as a whole. To model this, we define a tractable solution concept, "local perception equilibrium" (LPE), that describes possible behavior and perceptions when agents' beliefs are derived only from their local interactions. We show that there is a unique form of misperception that can persist in any environment: This is assortativity neglect, where all agents believe the people they interact with to be a representative sample of society as a whole. Relative to the case with correct perceptions, assortativity neglect generates two mutually reinforcing departures: A "false consensus effect," whereby agents' perceptions of average characteristics in the population are increasing in their own type; and more "dispersed" behavior in society, which adversely affects welfare due to increased miscoordination. Finally, we propose a comparative notion of when one society is more assortative than another and show that more assortative societies are characterized precisely by greater action dispersion and a more severe false consensus effect, and as a result, greater assortativity has an ambiguous effect on welfare.

Keywords: Local interactions; Assortativity; Misperception (search for similar items in EconPapers)
JEL-codes: C70 D80 D85 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2018-04
New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Dispersed Behavior and Perceptions in Assortative Societies (2021)
Working Paper: Dispersed Behavior and Perceptions in Assortative Societies (2021)
Working Paper: Dispersed Behavior and Perceptions in Assortative Societies (2019)
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