PhD Lunch Seminars Amsterdam

Huyen Nguyen (Erasmus University Rotterdam)
Tuesday, 16 May 2017

The tendency to disproportionately interact with people similar traits (i.e homophily) is a ubiquitous phenomenon. Contrary to the common hypothesis that homophily hampers group creativity and innovation, related theoretical and empirical findings are mixed. This paper examines the impact of homophily on team innovation decisions, in a simple setting where agents decide whether or not to implement a project that embodies strategic complementarities. Agents receive private signals about the innovation quality. Crucially, we assume that agents in more homogeneous teams are more likely to receive the same, rather than independent, information. In the first-best scenario where agents share information truthfully, homophily reduces the probability of implementation. On the contrary, when agents cannot communicate, the probability of implementation is higher in more homogeneous groups. Conditional on receiving a favourable signal, homophily increases the likelihood that the other agent also receives a favourable signal, thus making implementation more attractive. Given these effects, we discuss alternative interpretations and potential extensions in correlation neglect and information collection behaviour within the organisational context. Joint work with Josse Delfgaauw.