Working Paper: NBER ID: w13579
Authors: Geoffrey Heal; Howard Kunreuther
Abstract: There are many social situations in which the actions of different agents reinforce each other. These include network effects and the threshold models used by sociologists (Granovetter, Watts) as well as Leibenstein's "bandwagon effects." We model such situations as a game with increasing differences, and show that tipping of equilibria as discussed by Schelling, cascading and Dixit's results on clubs with entrapment are natural consequences of this mutual reinforcement. If there are several equilibria, one of which Pareto dominates, then we show that the inefficient equilibria can be tipped to the efficient one, a result of interest in the context of coordination problems.
Keywords: Social Reinforcement; Cascades; Entrapment; Tipping
JEL Codes: D20; D80; D85; Q59
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| individual decisions (D70) | collective outcomes (D70) |
| social reinforcement (C92) | entrapment (K42) |
| individual's change in behavior (C91) | collective shift in equilibrium (D59) |
| mutual reinforcement among individuals' choices (D71) | tipping point (F61) |
| small group of agents (L85) | shift from inefficient to efficient outcomes (D61) |
| social interactions (Z13) | tipping sets (Y20) |