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Assortative Interactions and Endogenous Stratification

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  • Susan Lee

Abstract

An evolutionary model is used to examine how the presence of strategic risk and exclusion in interactions on the basis of economic class differences (assortive matching) can explain persistent inequality. A large population of agents is matched asynchronously according to a wealth-weighted probability distribution to play a 2 x 2 coordination game with a Pareto dominant equilibrium and a risk dominant equilibrium. Best response dynamics eventually select the inferior equilibrium, but with sufficiently strong exclusion inequality arises and persists for arbitrarily long finite periods. In particular, exclusion increases the probability that an upper class will arise. In an environment with strategic risk, exclusion helps preserve confidence in the good equilibrium strategy but also perpetuates inequality.

Suggested Citation

  • Susan Lee, 1999. "Assortative Interactions and Endogenous Stratification," Working Papers 99-08-056, Santa Fe Institute.
  • Handle: RePEc:wop:safiwp:99-08-056
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    References listed on IDEAS

    as
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    Keywords

    Endogenous interactions; stratification; evolution of conventions;

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