Homophily & Strategic Behavior in Social Interactions: Evidence from a Lab Experiment

Abstract

Social networks play an important role in human interactions. It is possible for social differentiation and segregation to discourage links that are desirable from an efficiency point of view, or for social matches to encourage them. In this study, I have studied how individual behavior and diffusion of demographic information impacts social interactions. I assessed the three important determinants of social interactions: homophily, preference for fairness and past behavior via a controlled lab experiment. The subjects were divided into three treatment groups; representing an out-group and two degrees of in-group pairings. I conclude that participants show less homophily towards an in-group match when they know their partner cannot influence their outcome. However, if there is chance of the behavior being reprimanded, the opposite is true. Lastly, I highlight that there is strong evidence in favor of reciprocity and coordination because participants are responsive to their partner’s decision in prior interactions.