Peer Advice on Financial Decisions: A Case of the Blind Leading the Blind?

38 Pages Posted: 17 Sep 2018

See all articles by Sandro Ambuehl

Sandro Ambuehl

University of Toronto - Rotman School of Management

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Fulya Ersoy

Loyola Marymount University

Donna Harris

University of Oxford - Department of Economics

Date Written: September 2018

Abstract

Previous research shows that many people seek financial advice from non-experts, and that peer interactions influence financial decisions. We investigate whether such influences are beneficial, harmful, or simply haphazard. In our laboratory experiment, face-to-face communication with a randomly assigned peer significantly improves the quality of private decisions, measured by subjects' ability to choose as if they properly understand their opportunity sets. Subjects do not merely mimic those who know better, but also make better private decisions in novel tasks. People with low financial competence experience greater improvements when their partners also exhibit low financial competence. Hence, peer-to-peer communication transmits financial decision-making skills most effectively when peers are equally uninformed, rather than when an informed decision maker teaches an uninformed peer. Qualitative analysis of subjects' discussions supports this interpretation. The provision of effective financial education to one member of a pair influences the nature of communication but does not lead to additional improvements in the quality of the untreated partner's decisions, particularly in novel tasks.

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Suggested Citation

Ambuehl, Sandro and Bernheim, B. Douglas and Ersoy, Fulya and Harris, Donna, Peer Advice on Financial Decisions: A Case of the Blind Leading the Blind? (September 2018). NBER Working Paper No. w25034. Available at SSRN: https://ssrn.com/abstract=3250551

Sandro Ambuehl (Contact Author)

University of Toronto - Rotman School of Management ( email )

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

B. Douglas Bernheim

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8732 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Fulya Ersoy

Loyola Marymount University ( email )

1 LMU Drive
Los Angeles, CA 90045
United States
+1 310 338 7372 (Phone)

HOME PAGE: http://https://sites.google.com/site/drfulyaersoy

Donna Harris

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

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