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Open Access Publications from the University of California

Understanding Peer Effects in Financial Decisions


Using a high-stakes field experiment conducted in partnership with a large financial brokerage in Brazil, we attempt to disentangle channels through which a person's financial decisions affect his peers'. When someone purchases an asset, his peers may want to purchase it as well, both because they learn from his choice (“social learning") and because his possession of the asset affects others' utility of owning the same asset (“social utility"). We randomize whether one member of a peer pair is allowed to possess an asset that he chose to purchase. Then, we randomize whether the second member of the pair 1) receives no information about the first member, or 2) is informed of the first member's desire to own the assetandthe result of the randomization that determined possession. This allows us to estimate the effects of (a) learning plus possession, and (b) learning alone, relative to a control group, allowing us to separately identify effects of the “social learning" and “social utility" channels. In the control (no information) group, 42% of individuals purchased the asset; this increases to 71% in the “social learning only" group; and, it increases to 93% in the “social learning and social utility" group. We find thatboth“social learning" and “social utility" channels are quantitatively important, and have independent, statistically significant effects on the decision to purchase the asset.

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