Peer effects, self-selection and dishonesty

Abstract

If individuals tend to behave like their reference group, is it because of peer effects, self-selection, or both? Using a peer effect model allowing for conformity and link formation, we designed a real-effort laboratory experiment in which individuals could misreport their performance and select their peers. Our results reveal both a preference for conformity and homophilous link formation, but only among individuals cheating in isolation. This suggests that such link formation was not motivated by a taste for similarity but by acquiring self-serving information. Importantly, we reject the presence of a self-selection bias in the peer effect estimates by showing that the size of peer effects is similar when identical peers were randomly assigned and when individuals selected them.

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