'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
Date Written: December 5, 2016
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: Suggested Citation