Academic journal article Economic Inquiry

Mutual Admiration Clubs

Academic journal article Economic Inquiry

Mutual Admiration Clubs

Article excerpt

Birds of a feather flock together; presumably, they admire their peers' plumage. There is a wealth of evidence that members of a particular social group evaluate in-group members more favorably than out-group members (e.g., Brewer and Kramer 1985; Brown 1986). At least two possible explanations can account for this observation. One is that repeated interactions within a group produce feelings of solidarity and identification, which lead to mutual admiration. Alternatively, people who appreciate one another may self-select into the same social group. Economics has little to add to the first explanation. Accordingly, this article pursues the second line of argument.

The social contacts that a person has are influenced by his social roles and by factors such as physical proximity, but they are also a matter of choice. People choose whom to make friends with. Casual observation as well as academic research indicates that attitudinal similarity is a major determinant of interpersonal attraction and positive social judgment (e.g., Byrne 1971; McElwee et al. 2001; Newcomb 1961; Wittenbaum, Hubbell, and Zuckerman 1999). In other words, even after controlling for socioeconomic status, people prefer to associate with those who share similar views as their own. In his book Republic.com, Sunstein (2001) describes how the advent of information technology has enormously expanded the range of social contacts available to individuals. By logging into Internet chat rooms, for example, the choice of conversation partners is not confined by physical distance or social status. But instead of increasing the exchange of opinion among people of diverse viewpoints, Sunstein argues that information technology has led to an increasing fragmentation of the social space. The reason is that people choose to expose themselves only to familiar viewpoints, and technology has facilitated a more precise matching of individuals who share similar attitudes.

In this article, I develop a model of group formation, which explains why people prefer to exchange information with like-minded individuals. In this model, people are differentiated by their prior beliefs about some unknown state. They receive private information about the state and exchange their information with others in their group. There are two types of private signals. Informed persons observe real signals that are partially revealing about the state, while uninformed persons observe bogus signals that are pure noise but are believed to be informative. I assume that an individual derives utility from learning real signals; hence, each tries to join the group that is believed to contain the largest proportion of informed persons.

Internet chat rooms provide a convenient metaphor for the nature of the problem. Of the many chat rooms that focus on a particular subject, the choice of which one to join depends on who else is present in each chat room. I may enter a chat room that I believe contains cogent and insightful arguments related to the subject. But other people in the chat room may leave because they think that the quality of the arguments deteriorates as I enter the discussion. It is therefore possible that this kind of situation may admit no equilibrium, as is driven by the logic of Groucho Marx's dictum. (1) Nevertheless, for the setup described in this article, equilibrium can be proved to exist. In this equilibrium, society is segmented into two or more distinct groups. Members of each group prefer to canvass opinion from one another than to sample views from people in other groups because everyone believes that members

of his own group are smarter (i.e., more likely to be informed) than those of other groups. Moreover, the equilibrium has the interesting property that each group consists of individuals who share similar beliefs; people with disparate views do not mingle together.

The intuition behind this result is not difficult to understand. …

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