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Measuring the effect of peers on individuals' outcomes is a challengingproblem, in part because individuals often select peers who are similar in bothobservable and unobservable ways. Group formation experiments avoid thisproblem by randomly assigning individuals to groups and observing theirresponses; for example, do first-year students have better grades when they arerandomly assigned roommates who have stronger academic backgrounds? In thispaper, we propose randomization-based permutation tests for group formationexperiments, extending classical Fisher Randomization Tests to this setting.The proposed tests are justified by the randomization itself, requirerelatively few assumptions, and are exact in finite-samples. This approach canalso complement existing strategies, such as linear-in-means models, by using aregression coefficient as the test statistic. We apply the proposed tests totwo recent group formation experiments.

Randomization tests for peer effects in group formation experiments