CFDP 2128R

Dispersed Behavior and Perceptions in Assortative Societies

Author(s): 

Publication Date: April 2018

Revision Date: March 2019

Pages: 46

Abstract: 

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.

Supplemental material

Supplement pages: 22

Keywords: Assortativity neglect, Coordination games, Self-confirming equilibrium, Misperception

JEL Classification Codes: C70, D83, D90

JEL Classification Codes: C70D83D90