Working Paper: NBER ID: w18241
Authors: Leonardo Bursztyn; Florian Ederer; Bruno Ferman; Noam Yuchtman
Abstract: Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We find that both channels have statistically and economically significant effects on investment decisions. These results can help shed light on the mechanisms underlying herding behavior in financial markets.
Keywords: peer effects; financial decisions; social learning; social utility; field experiment
JEL Codes: C93; D03; D14; D83; G0; G11; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Social learning (C92) | Social utility (D11) |
| Peers' purchasing decisions (C92) | Others' investment choices (G11) |
| Investor 1's purchase (G24) | Investor 2's likelihood to invest (G11) |
| Possession of the asset by Investor 1 (G19) | Utility perceived by Investor 2 (G19) |