CFDP Revision Date
March 1, 2019
Journal of Economic Literature (JEL) Code(s)
C70, D83, D90
We take an equilibrium-based approach to study the interplay between behavior and misperceptions in coordination games with assortative interactions. Our focus is assortativity neglect, where agents fail to take into account the extent of assortativity in society. We show, ﬁrst, that assortativity neglect ampliﬁes action dispersion, both in ﬁxed societies and by exacerbating the eﬀect of social changes. Second, unlike other misperceptions, assortativity neglect is a misperception that agents can rationalize in any true environment. Finally, assortativity neglect provides a lens through which to understand how empirically documented misperceptions about distributions of population characteristics (e.g., income inequality) vary across societies.
Frick, Mira; Iijima, Ryota; and Ishii, Yuhta, "Dispersed Behavior and Perceptions in Assortative Societies" (2018). Cowles Foundation Discussion Papers. 145.