Integrating economic and psychological insights in binary choice models with social interactions

Details Integrating economic and psychological insights in binary choice models with social interactions Integrating economic and psychological insights in binary choice models with social interactions

2006-09-20

arxiv.org/abs/physics/0609170v1

Physics

Physics and Society

26 pages, 3 figures

Scientific paper

We investigate a class of binary choice models with social interactions. We propose a unifying perspective that integrates economic models using a utility function and psychological models using an impact function. A general approach for analyzing the equilibrium structure of these models within mean-field approximation is developed. It is shown that within a mean-field approach both the utility function and the impact function models are equivalent to threshold models. The interplay between heterogeneity and randomness in model formulation is discussed. A general framework is applied in a number of examples leading to some well-known models but also showing the possibility of more complex dynamics related to multiple equilibria. Our synthesis can provide a basis for many practical applications extending the scope of binary choice models.

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