A belief-based theory of homophily

Willemien Kets*, Alvaro Sandroni

*Corresponding author for this work

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

Homophily, the tendency of people to associate with people similar to themselves, is a widespread phenomenon that has important economic consequences. We endogenize players' preferences for interacting with their own group by modeling the process by which players take others' perspective. Homophily emerges because players find it easier to put themselves into the shoes of members of their own group. The model sheds light on various empirical regularities and has novel welfare implications. In particular, policies that reduce homophily may not improve social welfare.

Original languageEnglish (US)
Pages (from-to)410-435
Number of pages26
JournalGames and Economic Behavior
Volume115
DOIs
StatePublished - May 2019

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Keywords

  • Coordination
  • Culture
  • Homophily
  • Strategic uncertainty
  • Theory of mind

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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