A model of social distance is presented that is useful for understanding social decisions. An example is constructed of class stability. Agents who are initially close interact strongly while those who are socially distant have little interaction. In this example, inherited social position, which may be interpreted as social class, plays a dominant role. The relevance of this model to social decisions, such as the choice of educational attainment and childbearing, is discussed in the context of specific ethnographic examples. Class position may play a dominant role in these decisions.

The concept of adaptively rational equilibrium (A.R.E.) is introduced. Agents adapt their beliefs over time by choosing from a finite set of different predictor or expectations functions. Each predictor is a function of past observations and has a performance or fitness measure which is publicly available. Agents make a rational choice concerning the predictors based upon their past performance. This results in a dynamics across predictor choice which is coupled to the equilibrium dynamics of the endogenous variables. As a simple, but typical, example we consider a cobweb type demand-supply model where agents can choose between rational and naive expectations. In an unstable market with (small) positive information costs for rational expectations, a high intensity of choice to switch predictors leads to highly irregular equilibrium prices converging to a strange attractor. The irregularity of the equilibrium time paths is explained by the existence of a so-called homoclinic orbit and its associated complicated dynamical phenomena. Thus local instability and global complicated dynamics may be a feature of a fully rational notion of equilibrium.