Publication Date: April 2018
Revision Date: March 2019
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.
Supplement pages: 22
Keywords: Assortativity neglect, Coordination games, Self-confirming equilibrium, Misperception
JEL Classification Codes: C70, D83, D90