Essays on discrete choice under social interaction methodology and applications /

by 1978- Li, Ji

My dissertation focuses on interaction-based models in which a given agent’s payo¤ function directly incorporates the expected choices of other agents. Such models are appealing in investigating group behavior evolving from individual interactions and in explaining individual behavior under group in‡uence. The …rst essay examines two methods of modeling binary choice with social interactions: model assuming homogenous rational expectations and model using subjective data on expectations. Exploiting a unique survey conducted during the 1996 U.S. presidential election that was designed to study voting behavior under social context, we …nd that in various model speci…cations, using subjective expectations consistently improves models’goodness-of-…t; and that expectations are not rational as formulated by Brock and Durlauf. Speci…cally, members’characteristics are individually important in forming expectations. We also include correlated e¤ect into the rational expectation model and demonstrate that its identi…cation is made possible by the nonlinearity introduced through rational expectation term. This extension provides a remedy to the selection issues that often arise in social interaction models. My second essay empirically investigates how political discussion among voters a¤ects their voting choices, particularly how a voter’s perception of his or her discussants’political sophistication in‡uences the extent to which his or her choice conforms ii to those of his or her discussants. I …nd that positive evaluation of discussants’political sophistication reinforces the degree of conformity. The third essay develops an interaction-based binary choice model with heterogeneous rational expectations and applies it to the study of adolescents’smoking behavior under peer in‡uence. We relax the homogeneous rational expectation assumptions in previous work and examine models in which members in a group hold di¤erent expectations toward the average choice of others (heterogeneous rational expectation). We propose an allocation mechanism that facilitates the evaluation of equilibriums and we also show that, under mild restrictions, unique rational expectations equilibrium exists in such model. In application, we investigate both endogenous and exogenous peer e¤ects in determining adolescents’smoking behavior and …nd that, in addition to own characteristics, peer e¤ects do have signi…cant impact. iii