Peer pressure might lead to lower income

Most students have taken at least one class just because a friend was taking it or had recommended it. But an academic paper co-authored by Stanford Economics professor Giacomo De Giorgi suggests that these peer-influenced decisions might be diminishing students’ future earnings.

De Giorgi and two professors from Bocconi University in Italy recently conducted a controlled study on first-year business students at the Italian university, where students are randomly assigned to sections for their nine required first-year classes.

After the first three semesters, students choose either a business or an economics major. Based on their analysis of these initial semesters, the researchers found that being frequently exposed to another student who chose economics, with “frequently” defined as having at least four out of the nine sections with the student, increased the likelihood that the student would also study economics, which is the less popular major by 7.4 percent.

In their paper, “Be as Careful of the Company You Keep as of the Books You Read: Peer Effects in Education and on the Labor Market,” the professors argue that the influence that peers’ academic decisions have on a student’s choice of major can prevent that student from choosing the major that best capitalizes on his or her individual skill set. The researchers claim the costs of this decision might be a lower GPA and, as a result, a reduced salary in the future.

“Results show that, indeed, one is more likely to choose a major when many of his or her peers make the same choice,” the paper stated. “We estimate that, when it diverts students from majors in which they seem to have a relative ability advantage, this effect leads to lower average grades and graduation mark, a penalty that in the labor market could cost up to 871 euros, or $1,117 a year.”

Professor Michele Pellizzariof Bocconi University, one of the three economists who co-authored the paper, said improving dissemination of information about each department could help students make better decisions.

“Universities should make sure that students are well informed about what exactly each subject is about,” Pellizzari said in an e-mail.

Although the results of his study suggest that students do not always choose the major that is best for their skill set, Pellizzari said he agrees that interest in a subject is the most important prerequisite for a major.

“Just go for the subject you like better,” he said. “You will generally have a strong comparative advantage there, at least in terms of motivation.”