Working Paper: NBER ID: w25566
Authors: Bing Han; David Hirshleifer; Johan Walden
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 new insight into savings rates. These predictions are distinct from other common models of consumption distortions.
Keywords: visibility bias; consumption behavior; saving behavior; social learning; policy interventions
JEL Codes: D14; D83; D84; D85; D91; G02; G11; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Visibility bias (D91) | Belief about others' consumption (D12) |
| Belief about others' consumption (D12) | Personal consumption (D12) |
| Visibility bias (D91) | Personal consumption (D12) |
| Social connectedness and demographic structures (Z13) | Visibility bias (D91) |
| Increased visibility of saving behaviors (E21) | Reduction in personal consumption (D12) |
| Visibility bias (D91) | Aggregate overconsumption and undersaving (E21) |
| Higher social observation tendencies (Z13) | Greater overconsumption (E21) |