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A belief-based theory of homophily

Author

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  • Kets, Willemien
  • Sandroni, Alvaro

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.

Suggested Citation

  • Kets, Willemien & Sandroni, Alvaro, 2019. "A belief-based theory of homophily," Games and Economic Behavior, Elsevier, vol. 115(C), pages 410-435.
    • Handle: RePEc:eee:gamebe:v:115:y:2019:i:c:p:410-435
    DOI: 10.1016/j.geb.2019.04.002
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    More about this item

    Keywords

    Homophily; Culture; Theory of mind; Strategic uncertainty; Coordination;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • Z1 - Other Special Topics - - Cultural Economics

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