Birds of a Feather Decide Poorly? Homophily in Groups

What Is Homophily in Groups?

When people preferentially surround themselves with like-minded others — a phenomenon known as homophily — it can systematically impair the quality of group decisions. The mechanism is groupthink: in homogeneous groups, dissenting perspectives are absent, critical questioning becomes rarer, and the group tends toward premature consensus.

This relationship is impressively demonstrated by a study by Gompers, Mukharlyamov, and Xuan (2016) in the venture-capital sector. The authors constructed an Affinity Score — a composite index of personal similarity between investor pairs, based on shared alma mater, ethnic background, gender, and previous employer. The result: the higher the Affinity Score, the worse the investment outcome. The effect is highly significant (p < 0.01) and remains stable after controlling for individual investor ability.

The VC Study

A particularly revealing finding is the distinction between selection and treatment: similar investors do not pick worse projects — the ex-ante quality of investments does not correlate with the Affinity Score. Instead, they make worse decisions after investing. In early-stage investments, where post-investment decisions are especially critical (hiring executives, adjusting strategy, arranging follow-on funding), the negative effect of homophily is strongest.

Diversity research (Williams & O’Reilly, 1998) explains why heterogeneous teams decide better: different knowledge bases, experiences, and perspectives foster more creative solutions and a broader range of options. Homogeneous groups, by contrast, suffer from information redundancy — all members bring similar knowledge — and from social pressure to suppress dissenting opinions.

More Cooperation, Worse Decisions

For social capital and friendship networks this means: networks composed exclusively of similar people offer less access to novel information and resources. Bridging social capital — connections to dissimilar groups — can improve decision quality and information access.

The Gompers et al. (2016) study stands out for its methodology: more than 15,000 investment pairs were analyzed, counterfactual pairs constructed, and instrumental variables employed. The success measure (IPO) is objective and independent of subjective assessment. Diversity research (Williams & O’Reilly, 1998) summarizes over 40 years of findings and consistently identifies positive effects of perspective diversity on group performance, especially for complex tasks. Janis’s (1972) groupthink theory provides the classic framework for understanding how group homogeneity undermines decision quality.

Echo Chambers Among Friends

These findings come from a professional context (venture capital) where decision quality is clearly measurable. In personal friendships, the “quality” of decisions is harder to operationalize. Moreover, research shows that homophily in friendships serves important positive functions: it facilitates understanding, strengthens trust, and reduces conflict. The negative effect on decision quality must therefore be weighed against the emotional and social benefits of similarity. Furthermore, the direction of causality is not unambiguous: worse projects could, despite controls, attract more affinity-based syndicates because strong projects find partners even without personal ties.

Countermeasures

The current state of research on this aspect is summarized below.

Frequently Asked Questions

Do similar groups make better decisions?

A particularly revealing finding is the distinction between selection and treatment: similar investors do not pick worse projects — the ex-ante quality of investments does not correlate with the Affinity Score.

What is groupthink?

When people preferentially surround themselves with like-minded others — a phenomenon known as homophily — it can systematically impair the quality of group decisions.

How can you avoid echo chambers?

This relationship is impressively demonstrated by a study by Gompers, Mukharlyamov, and Xuan (2016) in the venture-capital sector.

What does the VC study teach us?

Diversity research (Williams & O’Reilly, 1998) explains why heterogeneous teams decide better: different knowledge bases, experiences, and perspectives foster more creative solutions and a broader range of options.