Perceived Versus Actual Susceptibility to Normative Influence in the Presence of Defaulting Landlords
Review of Behavioral Finance, July 2011
36 Pages Posted: 28 Aug 2012
Date Written: August 26, 2012
Using an Instant Response Device within the context of a controlled experiment, we find that people’s self-assessment of Susceptibility to Normative Influence (SNI) differs substantially from the actual, or true, degree to which they are influenced by the actions of others. Actual SNI, a subconscious reaction to the behavior of those around us, can be altered when participants (falsely) believe their peers differ in their willingness to sign a new lease under various rental reduction incentives when their landlord has defaulted on his mortgage. The results are insensitive to eight alternative measures of actual SNI. This study supports the behavioral finance literature relating to herding in that we show people are very much willing to follow the lead of their peers, even in situations where information gain is not the likely derived benefit. Instead, people appear to herd in our study for social reasons.
Keywords: Susceptibility to Normative Influence, Falsely Induced Revealed Preferences, Residential Rental Market, Mortgage Defaults
JEL Classification: R30, Z00
Suggested Citation: Suggested Citation