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Similarity and Polarization in Groups

Author

Listed:
  • Mariagiovanna Baccara
  • Leeat Yariv
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.
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Suggested Citation

  • Mariagiovanna Baccara & Leeat Yariv, 2008. "Similarity and Polarization in Groups," Working Papers 08-27, New York University, Leonard N. Stern School of Business, Department of Economics.
    • Handle: RePEc:ste:nystbu:08-27
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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. Tabasso, Nicole, 2019. "Diffusion of multiple information: On information resilience and the power of segregation," Games and Economic Behavior, Elsevier, vol. 118(C), pages 219-240.
    5. Opolot, Daniel & Azomahou, Theophile, 2012. "Learning and convergence in networks," MERIT Working Papers 2012-074, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Enriqueta Aragonès, 2024. "Gender Choice at Work," Working Papers 1460, Barcelona School of Economics.

    More about this item

    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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