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Similarity and polarization in groups

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  • Baccara, Mariagiovanna
  • Yariv, Leeat

Abstract

The focus of this paper is the endogenous formation of peer groups. We study a model in which agents choose their peers prior to making decisions on multiple issues. Agents differ in how much they value the decision outcomes on one issue relative to another. While each individual can collect information on at most one issue, all information is shared within the group. Thus, the group's preference composition affects the type of information that gets collected. We characterize stable groups, groups that are optimal for all their members. When information costs are low, stable groups must be sufficiently homogeneous. Furthermore, stability requires more similarity among extremists than among moderate individuals. When information costs are substantial, a free rider problem arises, and makes extreme peers more desirable, as they are more willing to invest in information acquisition. We show that, as information costs grow, polarization appears and becomes increasingly pronounced in stable groups.

Suggested Citation

  • Baccara, Mariagiovanna & Yariv, Leeat, 2010. "Similarity and polarization in groups," Discussion Papers, Research Unit: Market Behavior SP II 2010-20, Social Science Research Center Berlin (WZB).
  • Handle: RePEc:zbw:wzbmbh:spii201020
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    Citations

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    Cited by:

    1. Nicole Tabasso, 2014. "Diffusion of Multiple Information," School of Economics Discussion Papers 0914, School of Economics, University of Surrey.
    2. Balazs Szentes & Marcin Pęski, 2012. "Spontaneous Discrimination," Working Papers 2012-005, Becker Friedman Institute for Research In Economics.
    3. Jacob K. Goeree & Margaret A. McConnell & Tiffany Mitchell & Tracey Tromp & Leeat Yariv, 2010. "The 1/d Law of Giving," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 183-203, February.
    4. Nicole Tabasso, 2015. "Diffusion of Multiple Information: On Information Resilience and the Power of Segregation," Working Papers 2015.55, Fondazione Eni Enrico Mattei.
    5. Opolot, Daniel & Azomahou, Theophile, 2012. "Learning and convergence in networks," MERIT Working Papers 074, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    Homophily; Polarization; Group Formation; Information Collection;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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