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Social dysfunction is a risk indicator for schizophrenia spectrum disorders, with at-risk individuals demonstrating a range of social behavior impairments. Variability in social ability may be explained by individual differences in the psychological processes of social behavior. In particular, mental simulation, the process by which an individual generates an internal representation of the thoughts or feelings of another, may explain variation in social behavior. This study investigates the neural process of simulation in healthy individuals and individuals at risk for psychosis. Using a novel fMRI pain paradigm, individuals watch videos of another person's hand or foot experiencing pain. After each video, individuals are asked to simulate the observed painful situation on their own hand or foot. Neural activity during simulation in the somatosensory cortex was associated with real-world self-reported social behavior, such that a stronger neural response in the somatosensory cortex was associated with greater rates of positive social experiences and affective empathy across all participants. These findings suggest that the neural mechanisms that underlie simulation are important for social behavior, and may explain individual variability in social functioning in healthy and at-risk populations.