Peer effect refers to being influenced by the behavior and way of thinking of peers. For example, the preference for top school districts reflects a belief that students will study harder if they are with peers with better school records. Peer effect occurs when one tries to abide by a norm and follows a role model. Abiding by a norm occurs when a peer's actions is followed to avoid social penalty such as being ostracized. In following a role model, actions and behavior of an exemplary peer are adopted. For example a student may use the same reference book as an outstandi...