Misspecified beliefs and the evolution of peer pressure

2026-05-04

AI Summary

This study investigates the endogenous evolution of conformity preferences and peer pressure in settings where individuals hold misspecified beliefs and social interactions lack direct material externalities. By constructing an optimal response model incorporating heterogeneous subjective beliefs and employing game-theoretic and evolutionary stability analyses, the paper demonstrates that even in the absence of genuine externalities, misspecified beliefs can generate a stable, positive level of endogenous peer pressure that sustains self-confirming Nash equilibria, thereby perpetuating erroneous beliefs over time. The analysis shows that while rational agents optimally exert zero peer pressure, misspecified agents converge to a unique, positive evolutionarily stable pressure level. When this pressure lies in the interior, agents’ effort choices coincide with the true optimum, yielding efficient resource allocation without distortion, yet generating information rents that depend solely on the degree of misspecification, thereby highlighting the perceived value of social information.

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.

Problem

• misspecified beliefs
• peer pressure
• conformity preferences
• evolutionary stability
• social information

Innovation

• misspecified beliefs
• peer pressure
• conformity preferences
• evolutionary stability
• informational rents