Events at CERGE-EI

Willemien Kets, Ph.D.

Kellogg School of Management, Northwestern University, Evanston, Illinois, USA

Authors: Willemien Kets and Alvaro Sandroni

Abstract: Homophily, the tendency of individuals to interact with similar others, is an obvious impediment to creating a more diverse and inclusive society. Existing models, which explain homophily by positing homophilous preferences, cannot say whether this leads to a welfare loss. We therefore develop a theory of homophily that does not rely on preferences. Rather, it builds on the dual process account of Theory of Mind in psychology. The framework allows us to assess the welfare consequences of policies aimed at enhancing diversity. Moreover, it delivers novel comparative statics that emphasize the interplay of cultural and economic factors.

Full Text:  “A belief-based theory of homophily”