A Belief-Based Theory of Homophily

a b s t r a c tMany instances of social interaction display either or both of the following well-documented phenomena. People tend to interact with similar others (homophily). They also tend to treat others of shared social identity more favorably (in-group bias). While both phenomena involve some degree of discrimination towards others, a systematic study of their relations and interplay is yet missing. In this paper we report the findings of an experiment designed to address this issue. Participants are exogenously and randomly assigned to one of two groups. Subsequently they play a sequence of eight games with either an in-group or an outgroup member. In treatment EXO in-and out-group matches are formed exogenously, while in ENDO participants can choose between in-and out-group matches. We find strong evidence of in-group bias in EXO, and strong evidence of homophily in ENDO. In-group biases, however, either decrease or disappear altogether under endogenous matching. We show that self-selection of homophilous agents into in-group matches cannot explain this fact. We also find that homophily is strongly correlated with risk aversion, and we build on this evidence to derive a rationale for both the existence of homophily and the disappearance of in-group biases under endogenous matching.

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“…Perceptions and beliefs also play a role in recent theories in Economics on the emergence of homophily (see e.g. Kets and Sandroni, 2014). …”

Section: On the Sources Of Homophilymentioning

confidence: 99%

Identity, homophily and in-group bias

Currarini

Mengel

2016

European Economic Review

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“…While we focused on teams and organizations, our model can be used more broadly to study which societies are more likely to thrive and innovate (Mokyr, 1990), to design diversity policies (Kets and Sandroni, 2015a), and to identify optimal organizational cultures (Hermalin, 2013). Exploring the economic implications of culture and identity promises to be an exciting research agenda.…”

Section: Discussionmentioning

confidence: 99%

“…By contrast, in our work, a player's identity affects his reasoning about others. Kets and Sandroni (2015a) use the approach developed here to show how identity shapes social interaction patterns. Bisin and Verdier (2001), Kuran and Sandholm (2008), and Bisin et al (2015) develop models of cultural transmission of preferences and cultural integration.…”

Section: Related Literaturementioning

confidence: 99%

Challenging Conformity: A Case for Diversity

Kets

Sandroni

2016

SSRN Journal

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Why do diverse groups outperform homogeneous groups in some settings, but not in others? We show that while diverse groups experience more frictions than homogeneous ones, they are also less conformist. Homogeneous groups minimize the risk of miscoordination, but they may get stuck in an inefficient equilibrium. Diverse groups may fail to coordinate, but if they do, they tend to attain efficiency. This fundamental tradeoff determines how the optimal level of diversity varies with social and economic factors.When it is vitally important to avoid miscoordination, homogeneous groups are optimal. However, when it is critical to implement new and efficient practices, diverse groups perform better. * Part of the material incorporated here was previously in a paper entitled "A belief-based theory of homophily" by the same authors (Kets and Sandroni, 2015a). We thank David Ahn, Larbi Alaoui, Sandeep Baliga, Vincent Crawford, Vessela Daskalova, Georgy Egorov, Tim Feddersen, Matthew Jackson, Wouter Kager, Rachel Kranton, George Mailath, Niko Matouschek, Friederike Mengel, Rosemarie Nagel, Alessandro Pavan, Antonio Penta, Nicola Persico, Debraj Ray, Yuval Salant, Larry Samuelson, Paola Sapienza, Rajiv Sethi, Eran Shmaya, Andy Skrzypacz, Jakub Steiner, Colin Stewart, Jeroen Swinkels, and numerous seminar audiences and conference participants for helpful comments and stimulating discussions.

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“…8 We assume that contributing to tasks is costly: making a contribution to either task comes at a cost of c 0. The cost c is strictly positive in any context in which contributions require e¤ort.…”

Section: The Modelmentioning

confidence: 99%

“…Lemma 1 (Existence) For any group of n agents with tastes t 1 t 2 ::: t n , there exists A 2 f0; :::; ng and B 2 f1; :::; n + 1g ; B > A ; such that all agents i A making an A-contribution, all agents i B making a B-contribution, and all other agents not making any contribution, constitutes an e¢ cient Nash equilibrium of the task-selection 8 The analysis of the paper does not change qualitatively if we assume that each agent can make any …xed number of contributions h 1:…”

Section: The Modelmentioning

confidence: 99%

Choosing peers: Homophily and polarization in groups

Baccara

Yariv

2016

Journal of Economic Theory

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Abstract.This paper studies the formation of peer groups entailing the joint production of public goods. In our model agents choose their peers and have to pay a connection cost for each member added to the group. After groups are formed, each agent selects a public project to make a costly contribution to, and all members of the group experience the bene…ts of these contributions. Since agents di¤er in how much they value one project relative to the other, the group's preferences a¤ect the generated pro…le of public goods. We characterize mutually optimal groups, groups that are optimal for all their members. When contribution costs are low relative to connection costs, mutually optimal groups must be su¢ ciently homogeneous. As contribution costs increase relative to connection costs, agents desire more connections, which in turn raises the risk of free riding. Extreme peers are then more appealing, since they are more willing to contribute, and polarization arises.

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A Belief-Based Theory of Homophily

Cited by 21 publications

References 95 publications

Identity, homophily and in-group bias

Identity, homophily and in-group bias

Challenging Conformity: A Case for Diversity

Choosing peers: Homophily and polarization in groups

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