Homophily, Peer effects and Dishonesty

If individuals who face ethical dilemmas tend to behave like their peers, is it because of conformity, that is, the preference of people to align behavior with the behavior of their peers, homophily, that is, the tendency of people to bond with similar others, or both? Using a peer effects model, we designed a real-effort laboratory experiment in which individuals could misreport their performance. Participants initially worked in isolation and then, depending on the condition, they were assigned peers at random or they were able to select their peers based on a signal about their past (dis-)honesty. This allowed us to estimate i) the effect of conformity on lying behavior, ii) the presence of homophily, and iii) whether the endogenous choice of peers generates a self-selection bias in the estimation of conformity. Our results reveal the presence of conformity on lying but only among participants who were already behaving dishonestly in isolation. We also find evidence of homophily in the selection of peers only among dishonest participants. Importantly, we can reject the presence of a self-selection bias due to homophily in the estimation of peer effects.

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