Sorting in the Presence of Misperceptions

62 Pages Posted: 10 Oct 2018

See all articles by Lisa Windsteiger

Lisa Windsteiger

Max Planck Institute for Tax Law and Public Finance

Date Written: October 4, 2018

Abstract

In this paper I develop a general model of how social segregation and beliefs interact. Sorting decisions will be affected by beliefs about society, but these beliefs about society are in turn influenced by social interactions. In my model, people sort into social groups according to income, but become biased about the income distribution once they interact only with their own social circle. I define "biased sorting equilibria", which are stable partitions in which people want to stay in their chosen group, despite their acquired misperceptions about the other groups. I introduce a refinement criterion – the consistency requirement – and find necessary and sufficient conditions for existence and uniqueness of biased sorting equilibria.

Keywords: D83, D85, Z13

JEL Classification: Stratification, Assortative Matching, Group Formation, Beliefs

Suggested Citation

Windsteiger, Lisa, Sorting in the Presence of Misperceptions (October 4, 2018). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2018-08. Available at SSRN: https://ssrn.com/abstract=3260459 or http://dx.doi.org/10.2139/ssrn.3260459

Lisa Windsteiger (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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