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Essays on peer effects in social groups and information misperception

Staab, Manuel (2018) Essays on peer effects in social groups and information misperception. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.f0dtz3zgtuio


This thesis consists of three chapters. Chapter 1 develops a model that studies the interaction of two forces in the formation of social groups: the preference for high quality peers and the desire for status among one’s peers. I present a characterization of fundamental properties of equilibrium group structures in a perfect information, simultaneous move game when group membership is priced uniformly and cannot directly depend on type. While equilibrium groups generally exhibit some form of assortative matching between individual type and peer quality, the presence of status concern reduces the potential degree of sorting and acts as a force for greater homogeneity across groups. Chapter 2 expands on this framework and analyses the effect of status concern for the provision of groups under different market structures. I particularly focus on the implications for segregation and social exclusion. I find that status concern reduces the potential for and benefit from segregation - both for a social planner and a monopolist - but the interaction of preference for rank and status can make the exclusion of some agents a second-best outcome. Social exclusion might occur even if the market is served by competitive firms. Chapter 3 studies how two fundamental mistakes in information processing affect the welfare ranking of information experiments. In the spirit of Blackwell (1951), the binary ranking of informative action profiles is analysed under different classes of perception distortions. By themselves, an agent’s tendency to misinterpret signals and the degree to which the prior deviates from the truth reduce expected utility in a model where payoff relevant actions also generate informative signals. However, experiments can be affected to different degrees. Necessary and sufficient conditions for when any binary ranking of action profiles can be reversed are provided. As a consequence, different types of mistakes can interact in non-obvious ways such that an agent might be better off suffering from both rather than just one. The chapter concludes with a characterization when such positive interaction is possible and illustrates the implications in an investment setting with costly information acquisition.

Item Type: Thesis (PhD)
Additional Information: © 2018 Manuel Staab
Library of Congress subject classification: H Social Sciences > HN Social history and conditions. Social problems. Social reform
Sets: Departments > Economics
Supervisor: Nava, Francesco

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