Social Reinforcement: Cascades, Entrapment and Tipping
Geoffrey M. Heal
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
University of Pennsylvania - The Wharton School - Center for Risk Management; National Bureau of Economic Research (NBER); University of Pennsylvania - Operations & Information Management Department
American Economic Journals: Microeconomics, Vol. 2, No. 1, pp. 86-99, 2010
The actions of different agents sometimes reinforce each other. Examples are network effects and the threshold models used by sociologists as well as Harvey Leibensteins's "bandwagon effects." We model such situations as a game with increasing differences, and show that tipping of equilibria, cascading and clubs with entrapment are natural consequences of this mutual reinforcement. If there are several equilibria, one of which Pareto dominates, then the inefficient equilibria can be tipped to the efficient one, a result of interest in the context of coordination problems. We characterise the smallest tipping set.
Number of Pages in PDF File: 14
JEL Classification: C72, D80, D85, Z13Accepted Paper Series
Date posted: October 22, 2011
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