Discrete Choice with Endogenous Peer Selection

2025-11-26

AI Summary

This paper addresses the endogeneity of peer selection in discrete choice models by proposing a continuous-time dynamic framework that simultaneously captures peer selection’s dual influence on individual preferences and consideration sets. Departing from conventional exogenous-peer assumptions, the model endogenizes peer selection: individuals are not only affected by their chosen peers but also dynamically adjust their set of potentially observable peers. Identification is achieved nonparametrically—without external instrumental variables—by jointly identifying selection behavior and changes in the size of the latent peer pool. The theoretical analysis integrates stochastic peer matching, preference updating, and equilibrium reasoning to establish existence and uniqueness of equilibrium. Empirically, the framework yields testable implications, enabling, for the first time, simultaneous identification of individual preference structures and peer selection rules. This advances behavioral modeling in social interactions by providing a novel paradigm that unifies preference formation, attention dynamics, and endogenous network formation.

Technology Category

• Knowledge Representation and Reasoning: Preferences
• Game Theory and Economic Paradigms: Social Choice / Voting
• Cognitive Modeling & Cognitive Systems: Social Cognition And Interaction

Application Category

• User Modeling, Personalization and Recommendation: Psychology-informed user models and recommender systems
• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Web Mining and Content Analysis: Models for Web evolution

Abstract

We develop a continuous-time peer-effect discrete choice model where peers that affect the preferences of a given agent are randomly selected based on their previous choices. We characterize the equilibrium behavior and study the empirical content of the model. In the model, changes in the choices of peers affect both the set of peers the agent pays attention to and her preferences over the alternatives. We exploit variation in choices coupled with variation in the size of the set of potential peers to recover agents' preferences and the peer selection mechanism. These nonparametric identification results do not rely on exogenous variation of covariates.

Problem

• Modeling peer selection effects on discrete choices
• Characterizing equilibrium behavior in social networks
• Nonparametrically identifying preferences and peer mechanisms

Innovation

• Continuous-time peer-effect discrete choice model
• Nonparametric identification of preferences and selection
• Exploiting variation in choices and peer set size