…. My Friends made me……

At some point, every kid has said “my friend made me” after screwing up. The adult usually responds with some derivative of “would you (insert deadly activity) if they asked you?”

Well… now that I’m technically an adult, I find that I still do incredibly dumb things under the influence of friends. The difference now is that 1) “friends” now includes upbringing, boss, peers 2) I now have a nice little model to justify this.

Start with a standard discounting utility model

According to this model, I value tomorrow less that today and two days from now less than tomorrow.

As a behavioural economist, I’m obligated to set d =1 (Rabin Critique) and insert 0<B<1 (Beta- delta) to represent the disproportionate discounting of the immediate future.

I value tomorrow less than today, but if you ask me today, 1 week from today is more or less the same as two weeks from now.

Now, enter the “friends”.

in the period of decision, I am influenced by the decision of “friends”. I capture this with the utility of the friend. Since the opinions of others are valued less than own experience, it’s discounted by a parameter, s, which captures how much the individual is influenced by others. s could also be interpreted as the inaccuracy from inferring what others want/expect/would do.

Of course, friends are not created equal.

To fix this, we can rank the friends and discount them at different rates.

Do people actually rank their friends? Probably not. But all models are wrong, and social credit systems are apparently a thing now.

Similar to the Beta-delta model, friends can lead me to behave inconsistently. Suppose I am making a decision. At the moment of decision, social influence kicks in.

If

then I will do what friends say even if it is bad suboptimal. However, if someone were to ask the me about a decision a week from now, the decision could be very different. Notice that it doesn’t matter what the action is or what the utility from the action is. The model works whether the the I’m being pressured into smoking a cigarette (hasn’t happened) or taking a maths class I promised myself I wouldn’t (happened 4 times).

So, would I jump off a cliff if my friends told me to?

maybe, but only if

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