Sorting in the Presence of Misperceptions
No tax-mpg-rps-2018-08, Working Papers from Max Planck Institute for Tax Law and Public Finance
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 suÂ¢ cient conditions for existence and uniqueness of biased sorting equilibria.
Keywords: Stratification; Assortative Matching; Group Formation; Beliefs (search for similar items in EconPapers)
JEL-codes: D83 D85 Z13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ure
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