Working Paper | HBS Working Paper Series | 2013

Separating Homophily and Peer Influence with Latent Space

by Joseph P. Davin, Sunil Gupta and Mikolaj Jan Piskorski

Abstract

We study the impact of peer behavior on the adoption of mobile apps in a social network. To identify social influence properly, we introduce latent space as an approach to control for latent homophily, the idea that "birds of a feather flock together." In a series of simulations, we show that latent space coordinates significantly reduce bias in the estimate of social influence. The intuition is that latent coordinates act as proxy variables for hidden traits that give rise to latent homophily. The approach outperforms existing methods such as including observed covariates, random effects, or fixed effects. We then apply the latent space approach to identify social influence on installation of mobile apps in a social network. We find that peer influence accounts for 27% of mobile app adoptions, and that latent homophily inflates this estimate by 40% (to 38%). In some samples, ignoring latent homophily can result in overestimation of social effects by over 100%.

Keywords: social influence; social network; mobile app; peer effects; latent homophily; latent space; proxy variables; Familiarity; Behavior; Consumer Behavior; Software; Social and Collaborative Networks; Mobile Technology; Power and Influence;

Citation:

Davin, Joseph P., Sunil Gupta, and Mikolaj Jan Piskorski. "Separating Homophily and Peer Influence with Latent Space." Harvard Business School Working Paper, No. 14-053, January 2014.