Social interactions in small groups

Canadian Journal of Economics, 2006

Recommended citation: Krauth, Brian (2006). "Social interactions in small groups." Canadian Journal of Economics. 39(2).

In the well-known ‘critical mass’ model of social interactions, aggregate behaviour exhibits multiple equilibria if the influence of group behaviour on individual behaviour exceeds some fairly high threshold. I demonstrate that this property depends on an implicit assumption that the relevant social group is large (infinite). With small (finite) social groups, the same model exhibits multiplicity whenever group behaviour exerts any influence. The range of equilibrium group behaviour depends on the size of the social group as well as its strength of influence. Brief applications on youth smoking and retirement planning demonstrate the implications of these results for applied work.

JEL classification: Z13, D00

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August 2003