The Economic Effects of Social Networks: Evidence from the Housing Market

86 Pages Posted: 29 Mar 2016 Last revised: 8 Jul 2017

Michael C. Bailey

Facebook

Rachel Cao

Harvard University

Theresa Kuchler

New York University (NYU)

Johannes Stroebel

New York University (NYU); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: July 4, 2017

Abstract

We show how data from online social networking services can help researchers better understand the effects of social interactions on economic decision making. We use anonymized data from Facebook, the world's largest online social network, to first explore heterogeneity in the structure of individuals' social networks. We then exploit the rich variation in the data to analyze the effects of social interactions on housing market investments. To do this, we combine the social network information with housing transaction data. Variation in the geographic dispersion of social networks, combined with time-varying regional house price changes, induces heterogeneity in the house price experiences of different individuals' friends. We show that individuals whose geographically distant friends experienced larger recent house price increases are more likely to transition from renting to owning. They also buy larger houses and pay more for a given house. Similarly, when homeowners' friends experience less positive house price changes, these homeowners are more likely to become renters, and more likely to sell their property at a lower price. We find that these relationships are driven by the effect of social interactions on individuals' housing market expectations. Survey data show that individuals whose geographically distant friends experienced larger recent house price increases consider local property a more attractive investment, with bigger effects for individuals who regularly discuss such investments with their friends.

Keywords: Social Networks, Expectation Formation, Disagreement, House Price Dynamics

JEL Classification: G12, D12, D14, D84, R21

Suggested Citation

Bailey, Michael C. and Cao, Rachel and Kuchler, Theresa and Stroebel, Johannes, The Economic Effects of Social Networks: Evidence from the Housing Market (July 4, 2017). Available at SSRN: https://ssrn.com/abstract=2753881 or http://dx.doi.org/10.2139/ssrn.2753881

Michael C. Bailey

Facebook ( email )

1601 S. California Ave.
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United States

Ruiqing Cao

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Theresa Kuchler

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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New York, NY 10003-711
United States

Johannes Stroebel (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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New York, NY 10003-711
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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