Mutual Admiration Clubs

28 Pages Posted: 6 Sep 2004

See all articles by Wing Suen

Wing Suen

The University of Hong Kong - School of Economics and Finance

Date Written: August 2004

Abstract

This paper proposes a theory of group formation based on the motive to seek informed opinion. Because an individual evaluates whether others are informed or not using his own priors, he identifies people with similar beliefs to be more informed than those with different beliefs. The result is an equilibrium in which society is divided into distinct groups, with members of each group believing that their own group is superior. When individuals have overconfidence in their ability to discern uninformed opinion from informed opinion, learning from like-minded peers can lead to persistent bias within a group.

Keywords: Social networks, overconfidence, self-selection, learning

JEL Classification: D71, D81, D83, D85

Suggested Citation

Suen, Wing C., Mutual Admiration Clubs (August 2004). Available at SSRN: https://ssrn.com/abstract=586342 or http://dx.doi.org/10.2139/ssrn.586342

Wing C. Suen (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

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