Abstract
Individuals often have biased perceptions about their peers' behavior. We use an economic equilibrium analysis to study the role social norms play in substance use decisions. Using a nationally representative dataset, we estimate the effect of misperception about friends' alcohol, smoking, and marijuana use on consumption of these substances by youths in grades 7-12. Overestimation of friend's substance use significantly increases adolescent's own use approximately 1year later, and the estimated effect is robust across specifications including individual-level fixed effects regression. The effect size is bigger for boys than for girls. The estimates for those who initially underestimated the norm suggest the possibility of a rebound/boomerang effect.
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