We take an equilibrium-based approach to study the interplay between behavior and misperceptions in coordination games with assortative interactions. Our focus is assortativity neglect, where agents fail to take into account the extent of assortativity in society. We show, first, that...

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...

We provide theoretical foundations for several common (nested) representations of intrinsic linear habit formation. Our axiomatization introduces an intertemporal theory of weaning a decision-maker from her habits using the device of compensation. We clarify differences across specifications of...

Beliefs are intuitive if they rely on associative memory, which can be described as a network of associations between events. A belief-theoretic characterization of the model is provided, its uniqueness properties are established, and the intersection with the Bayesian model is characterized....

We provide an axiomatic analysis of dynamic random utility, characterizing the stochastic choice behavior of agents who solve dynamic decision problems by maximizing some stochastic process (U_t) of utilities. We show first that even when (U_t) is arbitrary, dynamic random utility imposes new...

Under dynamic random utility, an agent (or population of agents) solves a dynamic decision problem subject to evolving private information. We analyze the fully general and non-parametric model, axiomatically characterizing the implied dynamic stochastic choice behavior. A key new feature...

The Internet allows sellers to track “window shoppers,” consumers who look but do not buy, and to lure them back later by targeting them with an advertised sale. This new technology thus facilitates intertemporal price discrimination, but simultaneously makes it too easy for a seller to...

The discounted-utilitarian social welfare function (DU) is used by the great majority of researchers studying intergenerational resource allocation in the presence of climate change (e.g., W. Nordhaus, M. Weitzman, N. Stern, and P. Dasgupta). I present three justifications for using DU: (1) the...

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then...

Cognitive dissonance is one of the most influential theories in psychology, and its oldest experiential realization is choice-induced dissonance. In contrast to the economic approach of assuming a person's choices reveal their preferences, psychologists have claimed since 1956 that people alter...