Homophily, Peer Effects, and Dishonesty

Abstract

If individuals tend to behave like their peers, is it because of conformity, that is, the preference of
people to align behavior with the behavior of their peers; homophily, that is, the tendency of
people to bond with similar others; or both? We address this question in the context of an ethical
dilemma. Using a peer effect model allowing for homophily, we designed a real-effort laboratory
experiment in which individuals could misreport their performance to earn more. Our results
reveal a preference for conformity and for homophily in the selection of peers, but only among
participants who were cheating in isolation. The size of peer effects is similar when identical
peers were randomly assigned and when they were selected by individuals. We thus jointly reject
the presence of a self-selection bias in the peer effect estimates and of a link strength effect.

Keywords: Peer Effects, Homophily, Dishonesty, Self-Selection Bias, Experiment

JEL Classification: C92, D83, D85, D91