Small-Group Interactions Reduce Homophily by Muting Directed Search

Andrea Galeotti, Reem Qamar and Adam Szeidl

No 21857, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study how the quasi-random assignment of MBA students to different peer groups shapes their homophily by gender and ethnicity. We show that students form substantially more cross-trait friendships within small groups than in the broader MBA cohort. We then decompose homophily into the contributions of peer-group composition, preferences, and directed search. Directed search, in which students approach peers with particular characteristics, can substantially amplify even weak preferences for same-trait friends. Survey evidence indicates only weak same-trait preferences but strong same-trait bias in approach decisions. Consistent with this pattern, structural estimates imply that directed search accounts for much of overall homophily. This result helps explain why homophily is lower in small groups, where directed search is muted, and suggests that homophily can be reduced through peer-group design.

Keywords: Homophily; Directed search; Group interaction effects; Gender; Ethnicity (search for similar items in EconPapers)
JEL-codes: A14 D85 J15 J16 Z13 (search for similar items in EconPapers)
Date: 2026-08
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