We analyze a class of dynamic binary choice models with social interaction. Agents are heterogeneous and their degree of conformism (taste externality) changes over time endogenously. We show that social interaction in itself is not enough to observe multiple equilibria and that the equilibrium outcome is not necessarily a polarized society. The social outcome depends on the law of motion that drives the evolution of taste externality.
Social interaction and conformism in a random utility model
TOLOTTI, Marco
2012-01-01
Abstract
We analyze a class of dynamic binary choice models with social interaction. Agents are heterogeneous and their degree of conformism (taste externality) changes over time endogenously. We show that social interaction in itself is not enough to observe multiple equilibria and that the equilibrium outcome is not necessarily a polarized society. The social outcome depends on the law of motion that drives the evolution of taste externality.
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