Abstract:
If individuals 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? We address this question in the context of ethical dilemmas. Using a peer effects model, we designed a real-effort laboratory experiment in which individuals could misreport their performance to earn more. Participants initially worked in isolation and then, depending on the condition, they were assigned peers at random or they could select their peers based on a signal on 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 and homophily in the selection of peers but only among participants who were already behaving dishonestly in isolation. Participants who behaved honestly in isolation are indifferent to the information received about peers and thus, do not exhibit any preference for homophily. Conditional on the absence of a self-selection bias due to homophily, the size of peer effects is similar when peers are assigned exogenously and when they are selected by individuals.

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