Misspecified beliefs and the evolution of peer pressure
TLDR
This paper shows how peer pressure emerges from misspecified beliefs, leading to self-confirming equilibria and informational rents.
Key contributions
- Characterizes subjective best responses and optimal peer pressure for agents.
- Shows unique, evolutionarily stable peer pressure exists for misspecified agents, but not for correct ones.
- Misspecified agents' effort equals true return, creating self-confirming and Nash equilibria.
- Peer pressure generates a perceived value of social information and informational rents.
Why it matters
This research explains how misspecified beliefs can drive the emergence of peer pressure, leading to stable, self-confirming behaviors. It highlights how such pressure can persist without allocative distortions, yet create value for social information.
Original Abstract
We study the emergence of conformity preferences in an environment in which agents choose effort under heterogeneous, possibly misspecified returns, and social interactions do not directly affect material payoffs. Some agents choose effort by trading off performance and conformity to expected peer behavior. We characterize subjective best responses. For any given beliefs, an optimal and unique level of peer pressure exists and is evolutionarily stable within groups of agents sharing the same misspecification. Such a level is zero for correctly specified agents and may be positive for misspecified ones. When the efficient level of peer pressure is interior, misspecified agents choose effort equal to their true return, resulting in an equilibrium behavior that is both self-confirming and Nash, allowing the persistence of misspecifications. Peer pressure need not generate long-run allocative distortions, but it creates a perceived value of social information. In equilibrium, this value depends only on misspecification, generating scope for informational rents.
📬 Weekly AI Paper Digest
Get the top 10 AI/ML arXiv papers from the week — summarized, scored, and delivered to your inbox every Monday.