The people in your neighborhood: Social interactions and mutual fund portfolios
| Authors | Pool, Stoffman, Yonker |
| Journal | Journal of Finance |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We find that socially connected fund managers have more similar holdings and trades. The overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers share a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long-short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk-adjusted returns. Unlike prior empirical work, our tests disentangle the effects of social interactions from community effects. |
| URL | https://doi.org/10.1111/jofi.12208 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |
News, politics, and negativity
| Authors | Soroka, McAdams |
| Journal | Political Communication |
| Year | 2015 |
| Type | Published Paper |
| Abstract | Work in political communication has discussed the ongoing predominance of negative news, but has offered few convincing accounts for this focus. A growing body of literature shows that humans regularly pay more attention to negative information than to positive information, however. This article argues that we should view the nature of news content in part as a consequence of this asymmetry bias observed in human behavior. A psychophysiological experiment capturing viewers' reactions to actual news content shows that negative news elicits stronger and more sustained reactions than does positive news. Results are discussed as they pertain to political behavior and communication, and to politics and political institutions more generally. |
| Keywords | Negativity bias, mass media, political communication, psychophysiology |
| URL | https://doi.org/10.1080/10584609.2014.881942 |
| Tags | Consumer Decisions | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Transmission Biases |
Broadcasting and narrowcasting: How audience size affects what people share
| Authors | Barasch, Berger |
| Journal | Journal of Marketing Research |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Does the number of people with whom someone communicates influence what he or she discusses and shares? Six studies demonstrate that compared with narrowcasting (i.e., communicating with just one person), broadcasting (i.e., communicating with multiple people) leads consumers to avoid sharing content that makes them look bad. Narrowcasting, however, encourages people to share content that is useful to the message recipient. These effects are driven by communicators' focus of attention. People naturally tend to focus on the self, but communicating with just one person heightens other-focus, which leads communicators to share less self-presenting content and more useful content. These findings shed light on the drivers of word of mouth and provide insight into when the communication sender (vs. receiver) plays a relatively larger role in what people share. |
| Keywords | Word of mouth, self-presentation, self-focus, other-focus, audience size |
| URL | https://doi.org/10.1509/jmr.13.0238 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
Word of mouth and interpersonal communication: A review and directions for future research
| Authors | Berger |
| Journal | Journal of Consumer Psychology |
| Year | 2014 |
| Type | Published Paper | Literature Review Paper |
| Abstract | People often share opinions and information with their social ties, and word of mouth has an important impact on consumer behavior. But what drives interpersonal communication and why do people talk about certain things rather than others? This article argues that word of mouth is goal driven and serves five key functions (i.e., impression management, emotion regulation, information acquisition, social bonding, and persuasion). Importantly, I suggest these motivations are predominantly self- (rather than other) serving and drive what people talk about even without their awareness. Further, these drivers make predictions about the types of news and information people are most likely to discuss. This article reviews the five proposed functions and well as how contextual factors (i.e., audience and communication channel) may moderate which functions play a larger role. Taken together, the paper provides insight into the psychological factors that shape word of mouth and outlines additional questions that deserve further study. |
| URL | https://doi.org/10.1016/j.jcps.2014.05.002 |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Transmission Biases |
Understanding mechanisms underlying peer effects: Evidence from a field experiment on financial decisions
| Authors | Bursztyn, Ederer, Ferman, Yuchtman |
| Journal | Econometrica |
| Year | 2014 |
| Type | Published Paper |
| 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 randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing his ability to possess the asset. Then, we randomize whether the second member of the pair: (i) receives no information about the first member, or (ii) is informed of the first member's desire to purchase the asset and the result of the randomization that determined possession. This allows us to estimate the effects of learning plus possession, and learning alone, relative to a (no information) control group. We find that both social learning and social utility channels have statistically and economically significant effects on investment decisions. Evidence from a follow-up survey reveals that social learning effects are greatest when the first (second) investor is financially sophisticated (financially unsophisticated); investors report updating their beliefs about asset quality after learning about their peer's revealed preference; and, they report motivations consistent with "keeping up with the Joneses" when learning about their peer's possession of the asset. These results can help shed light on the mechanisms underlying herding behavior in financial markets and peer effects in consumption and investment decisions. |
| URL | https://doi.org/10.3982/ECTA11991 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Learning from peers: Knowledge transfer and sales force productivity growth
| Authors | Chan, Li, Pierce |
| Journal | Marketing Science |
| Year | 2014 |
| Type | Published Paper |
| Abstract | We study how peers impact worker productivity growth among salespeople in the cosmetics department of a department store. We first exploit a shift assignment policy that creates exogenous variation in salespersons' peers each week to identify and quantify sources of worker learning. We find that peer-based learning is more important than learning-by-doing for individuals, and there is no evidence of forgetting. Working with high-ability peers substantially increases the long-term productivity growth of new salespeople. We then examine possible mechanisms behind peer-based learning by exploiting the multiple colocated firms in our setting that sell products with different task difficulties and compensate their sales forces using either team-based or individual-based compensation systems. The variation in incentives to compete and cooperate within and across firm boundaries, combined with variation in sales difficulty for different product classes, allows us to suggest two mechanisms behind peer-based learning: observing successful sales techniques of peers and direct teaching. Our paper advocates the importance of learning from one another in the workplace and suggests that individual peer-based learning is a foundation of both organizational learning curves and knowledge spillovers across firms. |
| URL | https://www.jstor.org/stable/24544760 |
| Tags | Archival Empirical | Productivity Spillovers |
Wisdom of crowds: The value of stock opinions transmitted through social media
| Authors | Chen, De, Hu, Hwang |
| Journal | The Review of Financial Studies |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Social media has become a popular venue for individuals to share the results of their own analysis on financial securities. This paper investigates the extent to which investor opinions transmitted through social media predict future stock returns and earnings surprises. We conduct textual analysis of articles published on one of the most popular social media platforms for investors in the United States. We also consider the readers' perspective as inferred via commentaries written in response to these articles. We find that the views expressed in both articles and commentaries predict future stock returns and earnings surprises. |
| URL | https://academic.oup.com/rfs/article-abstract/27/5/1367/1581938 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Family welfare cultures
| Authors | Dahl, Kostol, Mogstad |
| Journal | Quarterly Journal of Economics |
| Year | 2014 |
| Type | Published Paper |
| Abstract | We investigate the existence and importance of family welfare cultures, where the receipt of a welfare program by one generation causes increased participation in the next generation. Our context is Norway's disability insurance (DI) system. To overcome the challenge of correlated unobservables across generations, we take advantage of random assignment of judges to DI applicants whose cases are initially denied. Some appeal judges are systematically more lenient, which leads to random variation in the probability a parent will be allowed DI. Using this exogenous variation, we find strong evidence for a causal link across generations: when a parent is allowed DI at the appeal stage, their adult child's participation over the next five years increases by 6 percentage points. This effect grows over time, rising to 12 percentage points after 10 years. Although these findings are specific to our setting, they highlight that welfare reforms can have long-lasting effects on program participation, since any original effect on the current generation could be reinforced by changing the participation behavior of their children as well. The detailed nature of our data allows us to compare the intergenerational transmission with spillover effects in other networks and to explore mechanisms. |
| URL | https://doi.org/10.1093/qje/qju019 |
| Tags | Archival Empirical |
Peer effects in program participation
| Authors | Dahl, Loken, Mogstad |
| Journal | American Economic Review |
| Year | 2014 |
| Type | Published Paper |
| Abstract | We estimate peer effects in paid paternity leave in Norway using a regression discontinuity design. Coworkers and brothers are 11 and 15 percentage points, respectively, more likely to take paternity leave if their peer was exogenously induced to take up leave. The most likely mechanism is information transmission, including increased knowledge of how an employer will react. The estimated peer effect snowballs over time, as the first peer interacts with a second peer, the second peer with a third, and so on. This leads to long-run participation rates which are substantially higher than would otherwise be expected. |
| URL | https://www.aeaweb.org/articles?id=10.1257/aer.104.7.2049 |
Deviations from norms and informed trading
| Authors | Kumar, Page |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Investment managers are subject to personal and institutional norms that can constrain their investment choices. We conjecture that norm-constrained investors deviate from such norms only when they have compelling information, and we predict that deviating investments earn relatively high abnormal returns ex post. Consistent with our conjecture, we find that institutions averse to holding lottery-like stocks or sin stocks earn relatively high abnormal returns when they choose to hold such stocks. We find similar but weaker results for deviations from broader style categories. Overall, our evidence indicates that deviations from established institutional or social norms signal informed investing. |
| Keywords | Investment manager behavior, social norms, informed investing, portfolio performance |
| URL | https://doi.org/10.1017/S0022109014000519 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Information sharing and stock market participation: Evidence from extended families
| Authors | Li |
| Journal | Review of Economics and Statistics |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Using the Panel Study of Income Dynamics, we document that controlling for observable characteristics, household investors' likelihood of entering the stock market within the ensuing five years is about 20% to 30% higher if their parents or children had entered the stock market during the previous five years. By eliminating competing hypotheses such as preference similarity and herding, we argue that these findings highlight the significance of information sharing regarding household financial decisions. |
| URL | https://doi.org/10.1162/REST_a_00301 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
The experience versus the expectations of power: A recipe for altering the effects of power on behavior
| Authors | Rucker, Hu, Galinsky |
| Journal | Journal of Consumer Research |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Power transforms consumer behavior. This research introduces a critical theoretical moderator of power's effects by promoting the idea that power is accompanied by both an experience (how it feels to have or lack power) and expectations (schemas and scripts as to how those with or without power behave). In some cases, the psychological experience of power predisposes people to behave one way, whereas attention to the expectations of power suggests behaving in another way. As a consequence, power's effects for consumer behavior can hinge on consumers' focus. Specifically, a focus on the experience or expectations of power critically moderates how power affects both information processing and status seeking. However, as the experience of power incites a desire to act, and the powerful are expected to act, power produces more action regardless of focus. These findings provide a new lens on power and have important implications for consumer behavior. |
| URL | https://doi.org/10.1086/676598 |
Consumer demand for cynical and negative news frames
| Authors | Trussler, Soroka |
| Journal | International Journal of Press/Politics |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Commentators regularly lament the proliferation of both negative and/or strategic ("horse race") coverage in political news content. The most frequent account for this trend focuses on news norms and/or the priorities of news journalists. Here, we build on recent work arguing for the importance of demand-side, rather than supply-side, explanations of news content. In short, news may be negative and/or strategy-focused because that is the kind of news that people are interested in. We use a lab study to capture participants' news-selection biases, alongside a survey capturing their stated news preferences. Politically interested participants are more likely to select negative stories. Interest is associated with a greater preference for strategic frames as well. And results suggest that behavioral results do not conform to attitudinal ones. That is, regardless of what participants say, they exhibit a preference for negative news content. |
| Keywords | Negative news, strategy news, negativity bias, horse race, consumer demand, experimental design, gatekeeping |
| URL | https://doi.org/10.1177/1940161214524832 |
| Tags | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Transmission Biases |
The diffusion of microfinance
| Authors | Banerjee, Chandrasekhar, Duflo, Jackson |
| Journal | Science |
| Year | 2013 |
| Type | Published Paper |
| Abstract | To study the impact of the choice of injection points in the diffusion of a new product in a society, we developed a model of word-of-mouth diffusion and then applied it to data on social networks and participation in a newly available microfinance loan program in 43 Indian villages. Our model allows us to distinguish information passing among neighbors from direct influence of neighbors' participation decisions, as well as information passing by participants versus nonparticipants. The model estimates suggest that participants are seven times as likely to pass information compared to informed nonparticipants, but information passed by nonparticipants still accounts for roughly one-third of eventual participation. An informed household is not more likely to participate if its informed friends participate. We then propose two new measures of how effective a given household would be as an injection point. We show that the centrality of the injection points according to these measures constitutes a strong and significant predictor of eventual village-level participation. |
| URL | http://dx.doi.org/10.1126/science.1236498 |
| Tags | Archival Empirical | Social Network Structure |
Temporal contiguity and negativity bias in the impact of online word of mouth
| Authors | Chen, Lurie |
| Journal | Journal of Marketing Research |
| Year | 2013 |
| Type | Published Paper |
| Abstract | Prior research shows that positive online reviews are less valued than negative reviews. The authors argue that this is due to differences in causal attributions for positive versus negative information such that positive reviews tend to be relatively more attributed to the reviewer (vs. product experience) than negative reviews. The presence of temporal contiguity cues, which indicate that review writing closely follows consumption, reduces the relative extent to which positive reviews are attributed to the reviewer and mitigates the negativity bias. An examination of 65,531 Yelp.com restaurant reviews shows that review value is negatively related to review valence but that this negative relationship is absent for reviews that contain temporal contiguity cues. A series of lab studies replicates these findings and suggests that temporal contiguity cues enhance the value of a positive review and increase the likelihood of choosing a product with a positive review by changing reader beliefs about the cause of the review. |
| Keywords | Word of mouth, negativity bias, temporal contiguity, causal attributions |
| URL | https://doi.org/10.1509/jmr.12.0063 |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical | Social Transmission Biases |
The price of a CEO's rolodex
| Authors | Engelberg, Gao, Parsons |
| Journal | Review of Financial Studies |
| Year | 2013 |
| Type | Published Paper |
| Abstract | CEOs with large networks earn more than those with small networks. An additional connection to an executive or director outside the firm increases compensation by about $17,000 on average, more so for "important" members, such as CEOs of big firms. Pay-for-connectivity is unrelated to several measures of corporate governance, evidence in favor of an efficient contracting explanation for CEO pay. |
| Keywords | CEO compensation, social networks, information value, corporate governance |
| URL | https://doi.org/10.1093/rfs/hhs114 |
| Tags | Archival Empirical | Manager / Firm Behavior | Social Network Structure | Theory |
Creating buzz: The neural correlates of effective message propagation
| Authors | Falk, Morelli, Welbourne, Dambacher, Lieberman |
| Journal | Psychological Science |
| Year | 2013 |
| Type | Published Paper |
| Abstract | Social interaction promotes the spread of values, attitudes, and behaviors. Here we report on neural responses to ideas that are destined to spread. Message communicators were scanned using fMRI during their initial exposure to the to-be-communicated ideas. These message communicators then had the opportunity to spread the messages and their corresponding subjective evaluations to message recipients, outside the scanner. Successful ideas were associated with neural responses in the mentalizing system and the reward system when first heard, prior to spreading them. Similarly, individuals more able to spread their own views to others produced greater mentalizing system activity during initial encoding. Unlike prior social influence studies that focus on those being influenced, this investigation focused on the brains of influencers. Successful social influence is reliably associated with an influencer-tobe's state of mind when first encoding ideas. |
| Keywords | Social influence, mass media, social interaction, social behavior, neuroimaging |
| URL | https://doi.org/10.1177/0956797612474670 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
The determinants of attitudes toward strategic default on mortgages
| Authors | Guiso, Sapienza, Zingales |
| Journal | Journal of Finance |
| Year | 2013 |
| Type | Published Paper |
| Abstract | We use survey data to measure households' propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases in both the absolute and the relative size of the home-equity shortfall. Our evidence suggests that this willingness is affected by both pecuniary and non-pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued. |
| URL | https://doi.org/10.1111/jofi.12044 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
With a little help from my (random) friends: Success and failure in post-business school entrepreneurship
| Authors | Lerner, Malmendier |
| Journal | Review of Financial Studies |
| Year | 2013 |
| Type | Published Paper |
| Abstract | How do individuals decide to become entrepreneurs and learn to make optimal entrepreneurial decisions? The concentration of entrepreneurs in regions such as Silicon Valley has stimulated research and policy interest into the influence of peers, but the causal effect is hard to identify empirically. We exploit the exogenous assignment of students into business-school sections to identify the causal effect of entrepreneurial peers. We show that, in contrast to prior findings, a higher share of entrepreneurial peers decreases, rather than increases, entrepreneurship. The decrease is driven by a reduction in unsuccessful entrepreneurial ventures; the effect on successful ventures is significantly more positive. |
| URL | https://doi.org/10.1093/rfs/hht024 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Executive networks and firm policies: Evidence from the random assignment of MBA peers
| Authors | Shue |
| Journal | Review of Financial Studies |
| Year | 2013 |
| Type | Published Paper |
| Abstract | Using the historical random assignment of MBA students to sections at Harvard Business School (HBS), I explore how executive peer networks can affect managerial decision making. Within an HBS class, firm outcomes are significantly more similar among graduates from the same section than among graduates from different sections, with the strongest effects in executive compensation and acquisitions strategy. I demonstrate the role of ongoing social interactions by showing that peer effects are more than twice as strong in the year following staggered alumni reunions. Supplementary tests suggest that peer influence can operate in ways that do not contribute to firm productivity. |
| URL | https://doi.org/10.1093/rfs/hht019 |
| Tags | Archival Empirical | Manager / Firm Behavior |