Understanding Peer Effects in Financial Decisions: Evidence from a Field Experiment
University of California, Los Angeles (UCLA) - Anderson School of Management
Yale School of Management; Yale University - Cowles Foundation
Sao Paulo School of Economics - FGV
University of California, Berkeley - Haas School of Business
NBER Working Paper No. w18241
Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We find that both channels have statistically and economically significant effects on investment decisions. These results can help shed light on the mechanisms underlying herding behavior in financial markets.
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Number of Pages in PDF File: 82
Date posted: July 21, 2012
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