  In response to a change, individuals may choose to follow the responses of
their friends or, alternatively, to change their friends. To model these
decisions, consider a game where players choose their behaviors and
friendships. In equilibrium, players internalize the need for consensus in
forming friendships and choose their optimal strategies on subsets of k players
- a form of bounded rationality. The k-player consensual dynamic delivers a
probabilistic ranking of a game's equilibria, and, via a varying k, facilitates
estimation of such games.
  Applying the model to adolescents' smoking suggests that: (a.) the response
of the friendship network to changes in tobacco price amplifies the intended
effect of price changes on smoking, (b.) racial desegregation of high-schools
decreases the overall smoking prevalence, (c.) peer effect complementarities
are substantially stronger between smokers compared to between non-smokers.
(d.) the magnitude of the spillover effects from small scale policies targeting
individuals' smoking choices are roughly double compared to the scale of these
policies.
