'I'll Have What She's Having': Identifying Social Influence Effects in Household Mortgage Decisions

44 Pages Posted: 9 Dec 2016 Last revised: 16 Sep 2018

See all articles by W. Ben McCartney

W. Ben McCartney

Purdue University - Krannert School of Management; Duke University - Finance

Avni Shah

University of Toronto at Scarborough - Division of Management; University of Toronto - Rotman School of Management

Date Written: December 5, 2016

Abstract

We present new evidence on the causal nature of social interaction effects and the channels along which they operate by studying one of the largest and most consequential sets of financial decisions households make: their mortgage choices. We precisely geolocate more than one million mortgage choices and use a nearest-neighbor research design to find that households’ refinance, lender, and loan type choices are all peer influenced by their hyperlocal neighbors, i.e., those neighbors with whom they are most likely to interact frequently. Our results are robust to the inclusion of borrower and property control variables and time, geography, and lender fixed effects. Consistent with a word-of-mouth channel, movers to new areas and nonoccupant owners show little evidence of social influence. These same movers, though, make similar choices to their hyperlocal neighbors when refinancing, after social interactions have had time to occur. Households who ought to refinance are five times more strongly affected by peer refinances than households who ought not to.

Keywords: Household Finance, Mortgages, Peer Effects, Neighbors

JEL Classification: D12, D14, D71, G21, H31, R23

Suggested Citation

McCartney, W. Ben and Shah, Avni, 'I'll Have What She's Having': Identifying Social Influence Effects in Household Mortgage Decisions (December 5, 2016). Available at SSRN: https://ssrn.com/abstract=2882317 or http://dx.doi.org/10.2139/ssrn.2882317

W. Ben McCartney (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Duke University - Finance ( email )

Durham, NC 27708-0120
United States

HOME PAGE: http://duke.edu/~wbm5

Avni Shah

University of Toronto at Scarborough - Division of Management ( email )

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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