Even when an equilibrium is unique, there is the potential for a large social multiplier 10 in which the presence of interaction effects means that a small change in private incentives measured by h i can lead to large changes in aggregate behavior. Second, at least metaphorically, these models are suggestive in terms of how to think about specific social problems. Consider social pathologies such as out-of-wedlock birth, drug use, and high school dropout rates.
Conventional liberal explanations of high rates of social pathologies such as drug use and crime in poor communities focus on the absence of alternative routes leading to economic success. This baseline model illustrates how these are in fact complementary explanations.
It is only when the private incentives h i are weak that multiple equilibria, and hence socially reinforced yet undesirable outcomes, can emerge due to social interactions. A final advantage of this formulation is statistical.
As initially recognized in refs. Therefore, models of this type can be taken to data for estimation of the various model parameters. Further, these models suggest new types of statistics that should be computed to better understand cross-group behavior. One example is multimodality in the cross-group distribution of percentages of out-of-wedlock births, and so on, due to multiple equilibria. Yet another is excess cross-group variance in aggregate outcomes once differences in population characteristics are removed Although the use of statistical mechanics methods in economic and social modeling is in its infancy, these techniques have already proven valuable in understanding the interplay of individual- and group-level influences in determining population-wide behaviors.
In terms of theory, it is important to extend these models to account for the rules by which groups are formed: neighborhood residence, school enrollment, and employment are all contexts in which individual actors choose, subject to various constraints, which interaction environments they experience. In terms of econometrics, the development of statistical analyses that relax some of the assumptions necessary for development of the theory needs to be further explored.
Robust measurement of the nature and strength of interaction effects will, in turn, shape further developments of the theory. I thank William Brock for many conversations. Donald Hester provided valuable comments on this draft. MacArthur Foundation, and Romnes Fund have provided financial support. National Center for Biotechnology Information , U.
Steven N. Author information Copyright and License information Disclaimer. E-mail: ude. This article has been cited by other articles in PMC.
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Abstract A model of interdependent decision making has been developed to understand group differences in socioeconomic behavior such as nonmarital fertility, school attendance, and drug use. A Basic Model Consider a model of binary decisions made by each of I individuals who form a common group. Relation to Statistical Mechanics Models Eq. Summary and Conclusions Although the use of statistical mechanics methods in economic and social modeling is in its infancy, these techniques have already proven valuable in understanding the interplay of individual- and group-level influences in determining population-wide behaviors.
Acknowledgments I thank William Brock for many conversations. References 1. Blume L. Games Econ Behav.
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Brock W. Estudios Econ. Durlauf S. Rev Econ Studies. Brock, W. Theory , in press. Brock W, Durlauf S. In: Handbook of Econometrics V. Heckman J, Leamer E, editors. Amsterdam: North—Holland; Department of Health and Human Services. Tobacco Use Among U. Atlanta: Center for Disease Control and Prevention; Ellis R. Entropy, Large Deviations, and Statistical Mechanics. New York: Springer; Young H P. Individual Strategy and Social Structure. Princeton: Princeton Univ. Press; Manski C.
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