Publication Date: April 2018
Revision Date: March 2019October 2021
We formulate a model of social interactions and misinferences by agents who neglect assortativity in their society, 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.
Supplement pages: 9
Keywords: Assortativity neglect, Misperception, Strategic complementarities
JEL Classification Codes: C70, D83, D90CFDP 2128CFDP 2128RCFDP 2128R3