Social Interactions * Jos´ e A. Scheinkman Princeton University and NBER Abstract Social interactions refer to particular forms of externalities, in which the actions of a reference group affect an individual’s preferences. In the presence of strategic complementarities, social interactions help reconcile the observation of large differences in outcomes in the ab- sence of commensurate differences in fundamentals. I survey the theo- retical literature and discuss different approaches to estimating social interactions. Keywords: critical mass model, externalities, non-market inter- actions, random fields, social multiplier, strategic complementarities. 1 Introduction Social interactions refer to particular forms of externalities, in which the ac- tions of a reference group affect an individual’s preferences. The reference group depends on the context and is typically an individual’s family, neigh- bors, friends or peers. Social interactions are sometimes called non-market interactions to emphasize the fact that these interactions are not regulated by the price mechanism. Veblen’s [1934] analysis of conspicuous consumption that is consumption that signals wealth, is perhaps the first contribution to the economic lit- erature on social interactions. Duesenberry [1949] and Leibenstein [1950] are also among the earliest contributors. Although Veblen’s Theory of the Leisure Class has had a remarkable impact in the social sciences, Schelling’s * Research supported by the National Science Foundation through grant SES 0350770. I thank Alberto Bisin, Aureo de Paula, Ed Glaeser, and Yannis Ioannides for comments. 1