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This paper develops a model of social interactions with endogenous association. People are assumed to invest in relationships to maximize their utility. Even in a linear-in-means model, when associations are endogenous, the effect of macro-group composition on behavior is non-linear and varies across individuals. We also show that larger groups facilitate sorting. Using data on associations among high school students, we provide a range of evidence consistent with our model. Individuals associate with people whose behaviors and characteristics are similar to their own. This tendency is stronger in large groups. We also show that behaviors vary within and between macro-groups in the way predicted by endogenous association.

Establishing a strong scientific community is important as countries develop, which requires both producing and retaining of important scientists. We show that developing countries produce a sizeable number of important scientists, but that they experience a tremendous brain drain. Education levels, population, and per capita GDP are positively related to the number of important scientists born in and staying in a country. Our analysis indicates that democracy and urbanization are associated with the production of more important scientists although democracy is associated with more out-migration.

AbstractPeople use information about their ability to choose tasks. If more challenging tasks provide more accurate information about ability, people who care about and who are risk averse over their perception of their ability will choose tasks that are not sufficiently challenging. Moderate overestimation of ability and overestimation of the precision of initial information leads people to choose tasks that raise expected output (and utility); however, extreme overconfidence leads people to undertake tasks that are excessively challenging. Consistent with our results, psychologists find that moderate overconfidence is both pervasive and advantageous.