Visibility Bias in the Transmission of Consumption Beliefs and Undersaving
58 Pages Posted: 23 Jun 2016 Last revised: 2 Jun 2019
Date Written: May 29, 2019
We model visibility bias in the social transmission of consumption behavior. When consumption is more salient than non-consumption, people perceive that others are consuming heavily, and infer that future prospects are favorable. This increases aggregate consumption in a positive feedback loop. A distinctive implication is that disclosure policy interventions can ameliorate undersaving. In contrast with wealth-signaling models, information asymmetry about wealth reduces overconsumption. The model predicts that saving is influenced by social connectedness, observation biases, and demographic structure; and provides a novel explanation for the dramatic drop in savings rates in the US and several other countries in recent decades.
Keywords: visibility bias, overconsumption, saving, behavioral economics, social influence, social learning
JEL Classification: G11, G41, E71, E21
Suggested Citation: Suggested Citation