Salient Peers and Consumption: Evidence from the Warranty Claims of Neighbors

47 Pages Posted: 28 Sep 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Barry Scholnick

University of Alberta - Department of Marketing, Business Economics & Law

Man Zhang

University of Sydney

Date Written: August 2019

Abstract

We provide novel evidence that peer induced saliency bias acts as a mechanism to explain consumption peer effects. This bias occurs when consumers overweight the influence of a single, salient peer when assessing brand quality, and underweight more objective, aggregate quality data. We exploit data on durable good warranty claims, as an indicator of poor brand quality. We find that a warranty claim from a single neighbor, causes other neighbors to reduce their subsequent purchases of that brand. These peer induced biases are more likely to generate brand switching away from objectively higher quality brands, thus making consumers worse off.

Keywords: Saliency Bias, Peers, Warranty Claims

JEL Classification: D03, D12, G02

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Scholnick, Barry and Zhang, Man, Salient Peers and Consumption: Evidence from the Warranty Claims of Neighbors (August 2019). Available at SSRN: https://ssrn.com/abstract=3455802 or http://dx.doi.org/10.2139/ssrn.3455802

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Barry Scholnick

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

Man Zhang (Contact Author)

University of Sydney ( email )

H69 Codrington Building
Syndey, 2006
Australia

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