Economic Analysis of Social Interactions

Abstract

Economics is broadening its scope from analysis of markets to study of general social interactions. Developments in game theory, the economics of the family, and endogenous growth theory have led the way. Economists have also performed new empirical research using observational data on social interactions, but with much less to show. The fundamental problem is that observable outcomes may be generated by many different interaction processes, so empirical findings are open to a wide variety of interpretations. To make sustained progress, empirical research will need richer data, including experiments in controlled environments and subjective data on preferences and expectations.