Nonlinear dynamics of educational choices under social influence and endogenous returns

Original Abstract

Decisions to pursue higher education are not fully explained by economic incentives, with social influence and peer effects playing a crucial, yet dynamically understudied, role. This paper develops a theoretical non-linear dynamics model analysing the interplay between economic returns and social pressure. We model a heterogeneous population of "Followers" who exhibit imitative behaviour, and "Positional Agents" who display counter-adaptive behaviour. Agents' preferences for education evolve endogenously, reacting to both aggregate enrolment and an endogenous wage premium that declines with the supply of educated workers. The aggregate dynamics are governed by a one-dimensional non-linear map. By assuming fixed population structure. we show that the social conflict between pro-cyclical imitative forces and counter-cyclical positional forces can destabilize the steady state, generating a period-doubling route to chaos. These complex, endogenous fluctuations in enrolment emerge only for intermediate, heterogeneous population mixes, while homogeneous populations remain stable. We argue that this instability represents a significant coordination failure, scrambling economic signals and hindering rational long-term planning for both students and institutions, making it a key policy concern. Finally, we also extend the result to the case where the population structure is endogenous.