Misclassification and the Hidden Silent Rivalry

The interaction of economic agents is one of the most important elements in economic analyses. While peer effects on subjective outcomes, behavior or decisions, are inherently difficult to identify and estimate because these variables are prone to misclassification errors. In this paper, we propose a binary choice model with misclassification and social interactions to rectify the misclassification problems in peer effects studies. We achieve identification of the model by the tool of repeated measurements and propose nested pseudo likelihood algorithm for estimation. We bring the model to estimate the peer effects among students on attitudes towards learning (silent rivalry). Peer effects on students' attitudes towards learning are believed to have a significant impact on their achievements, while we find that these peer effects are distorted by the misclassification error. Our estimates suggest that peer effects are not only significant, but also much larger than estimates ignoring the misreporting errors and a significant proportion of students overreport their attitudes towards learning