Proximity and the Formation of Diverse Social Networks: Theory and Evidence

Abstract

We propose a friendship formation model that distinguishes the role of similarity and physical proximity on friendship patterns. This is a learning-based theory of friendship under which individuals spend time exploring the value of a friendship. The model predicts that friendship patterns exhibit homophily: similarity increases the likelihood of friendship. Higher proximity also increases the likelihood of friendship, and this effect is less pronounced for similar individuals: proximity fosters diversity. To verify the predictions, we use an experiment at selective boarding schools in Peru. While social networks exhibit homophily along multiple dimensions, proximity fosters more diverse friendships. This evidence stands in contrast to the predictions offered by a preference-based theory of homophily.