Behavioral influence

Abstract

In the context of stochastic choice, we introduce an individual decision model which admits a cardinal notion of peer influence. The model presumes that individual choice is not only determined by idiosyncratic evaluations of alternatives but also by the influence from the observed behavior of others. We establish that the equilibrium defined by the model is unique, stable and falsifiable. Moreover the underlying preference and influence parameters as well as the structure of the underlying network are uniquely identified from, arguably, limited data. The baseline model includes two individuals with conformity motives. Generalizations to multi-individual settings and negative interactions are also introduced and analyzed.