Visibility Bias in the Transmission of Consumption Beliefs and Undersaving
63 Pages Posted: 23 Jun 2016 Last revised: 4 Dec 2018
Date Written: June 7, 2016
We study how bias in the social transmission process affects contagion of consumption beliefs and behavior. In the model, consumption is more salient than non-consumption. This visibility bias causes people to perceive that others are consuming heavily and have favorable information about future wealth prospects. These inferences increase aggregate consumption. In contrast with other approaches, the visibility bias approach suggests that relatively simple disclosure policy interventions can ameliorate undersaving. In contrast with the Veblen wealth-signaling approach, information asymmetry about wealth reduces overconsumption. Our approach offers new implications about the effects on saving of social connectedness, observation biases, and demographic structure; and offers a novel explanation for the dramatic drop in the savings rate in the US and several other countries in the last thirty years.
Keywords: visibility bias, overconsumption, saving, behavioral economics, social influence, social learning
JEL Classification: G11, G41, E71, E21
Suggested Citation: Suggested Citation