Visibility Bias in the Transmission of Consumption Beliefs and Undersaving

59 Pages Posted: 19 Feb 2019

See all articles by Bing Han

Bing Han

University of Toronto, Rotman School of Management

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Johan Walden

University of Lausanne; Swiss Finance Institute; University of California, Berkeley - Finance Group

Multiple version iconThere are 2 versions of this paper

Date Written: February 2019

Abstract

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.

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Suggested Citation

Han, Bing and Hirshleifer, David A. and Walden, Johan, Visibility Bias in the Transmission of Consumption Beliefs and Undersaving (February 2019). NBER Working Paper No. w25566. Available at SSRN: https://ssrn.com/abstract=3336518

Bing Han (Contact Author)

University of Toronto, Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
Canada
4169460732 (Phone)

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Johan Walden

University of Lausanne

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of California, Berkeley - Finance Group ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 643-0547 (Phone)

HOME PAGE: http://www.haas.berkeley.edu/faculty/walden.html

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