A Theory of Endogenous Sentiments

We present a model in which each agent’s sentiments toward others are determined endogenously on the basis of how they behave relative to a standard of appropriate behavior. As sentiments change, so too does the optimal behavior of each individual, which in turn affects other agents’ sentiments toward them. We focus on fixed points of this reciprocal adjustment process. To demonstrate the potential use and implications of such a model, we present an extended example involving team production. We then consider various standards of behavior, and we examine stationary patterns of behavior and sentiments under each. ∗Institut d’Analisi Economica, CSIC, and Universitat Pompeu Fabra. Mailing address: Campus de la UAB, 08193 Bellaterra-Barcelona, Spain. Email: [email protected] †Department of Economics, University at Albany, SUNY. Mailing address: 1400 Washington Ave., Albany, NY 12222. Email: [email protected] Barcelona Economics WP no 102