Investor memory
| Authors | Godker, Jiao, Smeets |
| Year | 2020 |
| Type | Working Paper |
| Abstract | How does memory shape individuals' financial decisions? We find experimental evidence of a self-serving memory bias. Subjects over-remember their own positive investment outcomes and under-remember negative ones. In contrast, subjects who did not invest but merely observed outcomes do not have this bias. The memory bias affects individual beliefs and decisions to re-invest. After investing, subjects form overly optimistic beliefs about their investment and re-invest even when doing so leads to a lower expected return. The memory bias is relevant for understanding how people learn from experiences in financial markets and has general implications for individual overconfidence and risk-taking. |
| Keywords | Memory, selective recall, beliefs, self-image, investor behavior, experimental finance |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3348315 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Transmission Biases |
Presidential address: Social transmission bias in economics and finance
| Authors | Hirshleifer |
| Journal | Journal of Finance |
| Year | 2020 |
| Type | Published Paper |
| Abstract | I discuss a new intellectual paradigm, social economics and finance--the study of the social processes that shape economic thinking and behavior. This emerging field recognizes that people observe and talk to each other. A key, underexploited building block of social economics and finance is social transmission bias: systematic directional shift in signals or ideas induced by social transactions. I use five "fables" (models) to illustrate the novelty and scope of the transmission bias approach, and offer several emergent themes. For example, social transmission bias compounds recursively, which can help explain booms, bubbles, return anomalies, and swings in economic sentiment. |
| Keywords | Social transmission bias, social economics, social finance, behavioral economics, behavioral finance, social networks, social learning, information percolation, biased percolation, epidemiology, visibility bias, self-enhancing transmission bias, simplistic thinking, memes, cultural evolution |
| URL | https://onlinelibrary.wiley.com/doi/pdf/10.1111/jofi.12906 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Evolutionary Finance | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases | Theory |
Investing in low-trust countries: On the role of social trust in the global mutual fund industry
| Authors | Massa, Wang, Zhang, Zhang |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2020 |
| Type | Published Paper |
| Abstract | We hypothesize that social trust, in mitigating contracting incompleteness, may have an important effect on the activeness and effectiveness of delegated portfolio management. Using a complete sample of worldwide open-end mutual funds, we find that trust is positively associated with the activeness of funds and that trust-related active share delivers superior performance (e.g., approximately 2% per year for cross-border investments). Moreover, "trust in the market" and "trust in managers" play important yet different roles for different types of cross-border delegated portfolio management. Our results suggest that trust acts as a fundamental building block for delegated portfolio management. |
| Keywords | Social trust, portfolio management, mutual fund, contracting relationship |
| URL | https://doi.org/10.1017/S0022109020000848 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Investment Decisions (Institutional) |
Social collateral
| Authors | Nguyen, Dang |
| Year | 2020 |
| Type | Working Paper |
| Abstract | This paper studies the role of social stigma in debt repayment decisions, using a randomized field experiment with the borrowers of a retail bank. In our experiment, borrowers are randomly chosen to have their repayment status shared with an observer who is also randomly selected from a pre-existing list of the borrower's social connections. First, we find that receiving the social disclosure treatment significantly reduces delinquency, by 20% of the base rate. Second, estimates from the benchmarking treatments indicate that borrowers are willing to pay 9% of their monthly income to preserve their social image, not significantly less than they would pay to maintain a good credit report. Third, we combine the random variation in the assigned social contexts with heterogeneity in subject characteristics to examine why borrowers respond to reputational incentives. We find that borrowers are concerned that the revelation of delinquency can make them a less attractive match in social interactions such as in the labor market or the marriage market, i.e., the instrumental role of reputation. Our findings highlight the role of social social collateral as an alternative mechanism to enforce lending contracts and expand credit provision. |
| Keywords | Bank borrowing, social disclosure, reputational costs, debt repayment decision, social networks |
| URL | https://finance.darden.virginia.edu/wp-content/uploads/2020/08/Social-Collateral_062020.pdf |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
The neuroscience of information sharing
| Authors | Scholz, Falk |
| Book | Oxford Handbook of Networked Communication |
| Year | 2020 |
| Type | Book |
| Abstract | Information sharing is a core human activity that catalyzes innovation and development. Recent advances in neuroscience reveal information about the psychological mechanisms that drive sharing, with a particular focus on self-relevance, social cognition, and subjective value. Based on these insights, this chapter proposes a structural model of the neurocognitive and psychological processes that drive sharing decisions, called value-based virality. Further, it maps existing knowledge about neural correlates and moderators of thought processes linked to individual and population-level sharing events and outcomes and suggests avenues for future investigation. Finally, the chapter discusses the potential of the neuroscience of information sharing to interact productively with other methodological traditions such as computational social science. Initial neuroimaging studies of information sharing provide insights into psychological mechanisms that were previously inaccessible. With the development of more realistic experimental setups and multimethod designs, future efforts promise advances toward a unifying theory of why and how people share information. |
| Keywords | information sharing, retransmission, virality, fMRI, neuroscience, psychological mechanisms, social cognition, self-related processing, valuation, value-based virality |
| URL | https://www.asc.upenn.edu/sites/default/files/2021-03/The%20neuroscience%20of%20information%20sharing.pdf |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
Using gossips to spread information: Theory and evidence from two randomized controlled trials
| Authors | Banerjee, Chandrasekhar, Duflo, Jackson |
| Journal | Review of Economic Studies |
| Year | 2019 |
| Type | Published Paper |
| Abstract | Can we identify highly central individuals in a network without collecting network data, simply by asking community members? Can seeding information via such nominated individuals lead to significantly wider diffusion than via randomly chosen people, or even respected ones? In two separate large field experiments in India, we answer both questions in the affirmative. In particular, in 521 villages in Haryana, we provided information on monthly immunization camps to either randomly selected individuals (in some villages) or to individuals nominated by villagers as people who would be good at transmitting information (in other villages). We find that the number of children vaccinated every month is 22% higher in villages in which nominees received the information. We show that people's knowledge of who are highly central individuals and good seeds can be explained by a model in which community members simply track how often they hear gossip about others. Indeed, we find in a third data set that nominated seeds are central in a network sense, and are not just those with many friends or in powerful positions. |
| Keywords | Centrality, gossip, networks, diffusion, influence, social learning |
| URL | https://doi.org/10.1093/restud/rdz008 |
| Tags | Experimental / Survey-Based Empirical | Social Network Structure |
Social networks, reputation, and commitment: Evidence from a savings monitors experiment
| Authors | Breza, Chandrasekhar |
| Journal | Econometrica |
| Year | 2019 |
| Type | Published Paper |
| Abstract | We conduct an experiment to study whether individuals save more when information about the progress toward their self-set savings goal is shared with another village member (a "monitor"). We develop a reputational framework to explore how a monitor's effectiveness depends on her network position. Savers who care about whether others perceive them as responsible should save more with central monitors, who more widely disseminate information, and proximate monitors, who pass information to individuals with whom the saver interacts frequently. We randomly assign monitors to savers and find that monitors on average increase savings by 36%. Consistent with the framework, more central and proximate monitors lead to larger increases in savings. Moreover, information flows through the network, with 63% of monitors telling others about the saver's progress. Fifteen months after the conclusion of the experiment, other villagers have updated their beliefs about the saver's responsibility in response to the intervention. |
| Keywords | Commitment, reputation, savings, social networks. |
| URL | https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA13683 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
Identity and choice under risk
| Authors | D'Acunto |
| Year | 2019 |
| Type | Working Paper |
| Abstract | I test a set of predictions that constitute an identity theory of choice under risk using large-scale artefactual field experiments. Men whose identity is primed or threatened invest more in risky opportunities than other men and women. They become overconfident even in pure games of chance with no scope for skill, which is consistent with the motivated-beliefs channel identity theory postulates. The effects are stronger for men who are more likely to commit to male identity - older men and men in the Southern US. I show identity theory can contribute to explain negative-expected-value investment by risk-averse agents (e.g., trading individual stocks) and overinvestment in delegated choice under risk (e.g., managerial overinvestment) using simple financial opportunities. Because behaving in line with their identity increases men's utility, departures from expected utility theory are not necessarily suboptimal in this identity theory of choice under risk. |
| Keywords | Cultural finance, expectations, motivated beliefs, behavioral finance, overconfidence, financial decision-making, risk attitudes, heterogeneous agents, cultural economics |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3466626 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
The self-presentational consequences of upholding one's stance in spite of the evidence
| Authors | John, Jeong, Gino, Huang |
| Journal | Organizational Behavior and Human Decision Processes |
| Year | 2019 |
| Type | Published Paper |
| Abstract | Five studies explore the self-presentational consequences of refusing to "back down" -- that is, upholding a stance despite evidence of its inaccuracy. Using data from an entrepreneurial pitch competition, Study 1 shows that entrepreneurs tend not to back down even though investors are more impressed by entrepreneurs who do. Next, in two sets of experiments, we unpack the psychology underlying why actors refuse to publicly back down and investigate observers' impressions of those actors. Specifically, we show that observers view people who refuse to back down as confident but unintelligent, and these perceptions drive consequential decisions about such refusers, such as whether to invest in their ideas (Studies 1 & 2) or whether to hire them (Study 3). Although actors can intuit these effects (Study 4), this understanding is not reflected in their behavior because they are concerned with saving face (Study 5). |
| Keywords | Self-presentation, belief perseverance, judgment, confidence, persuasion |
| URL | https://doi.org/10.1016/j.obhdp.2019.07.001 |
| Tags | Experimental / Survey-Based Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior | Social Transmission Biases |
Not close enough for comfort: Facebook users eschew high intimacy negative disclosures
| Authors | Saling, Cohen, Cooper |
| Journal | Personality and Individual Differences |
| Year | 2019 |
| Type | Published Paper |
| Abstract | Facebook is a ubiquitous platform for self-disclosure; however, norms associated with online and offline disclosure appear to differ. The present study investigated whether people's disposition to disclose and comfort with others' disclosures of negatively-valenced content differs online and offline. Additionally, psychological predictors of offline and online disclosure were explored. Results revealed that offline disclosure of negatively-valenced personal information is preferred to online disclosure and that comfort with others' disclosure of such information is greater offline than online. As information becomes more sensitive, the likelihood of sharing this information online decreases; similarly, the degree of comfort with others' online disclosure of such information decreases. Agreeableness was positively correlated with reactions to others' online posts. Agreeableness, openness, self-esteem and emotional stability were positively correlated with comfort with others' offline disclosures. Tendency to disclose online was higher for those with low emotional stability and low openness (but only for some scenarios). Age effects were most prominent with respect to the information shared and comfort with others' disclosures, but across age groups there was a preference for offline, rather than online, sharing. Collectively, the results reveal that individual differences are weaker predictors of online disclosure than the nature of information disclosed. |
| Keywords | Facebook, personality, self-esteem, self-disclosure, audience effects, age |
| URL | https://doi.org/10.1016/j.paid.2019.01.028 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
Intergenerational mobility and preferences for redistribution
| Authors | Alesina, Stantcheva, Teso |
| Journal | American Economic Review |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Using new cross-country survey and experimental data, we investigate how beliefs about intergenerational mobility affect preferences for redistribution in France, Italy, Sweden, the United Kingdom, and the United States. Americans are more optimistic than Europeans about social mobility. Our randomized treatment shows pessimistic information about mobility and increases support for redistribution, mostly for "equality of opportunity" policies. We find strong political polarization. Left-wing respondents are more pessimistic about mobility: their preferences for redistribution are correlated with their mobility perceptions; and they support more redistribution after seeing pessimistic information. None of this is true for right-wing respondents, possibly because they see the government as a "problem" and not as the "solution". |
| Keywords | Social mobility, opportunity fairness, political process, heterogeneity in perceptions |
| URL | https://www.aeaweb.org/articles?id=10.1257/aer.20162015 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical |
The economic effects of social networks: Evidence from the housing market
| Authors | Bailey, Cao, Kuchler, Stroebel |
| Journal | Journal of Political Economy |
| Year | 2018 |
| Type | Published Paper |
| Abstract | We show how data from online social networking services can help researchers better understand the effects of social interactions on economic decision making. We combine anonymized data from Facebook, the largest online social network, with housing transaction data and explore both the structure and the effects of social networks. Individuals whose geographically distant friends experienced larger recent house price increases are more likely to transition from renting to owning. They also buy larger houses and pay more for a given house. Survey data show that these relationships are driven by the effects of social interactions on individuals' housing market expectations. |
| URL | https://www.journals.uchicago.edu/doi/abs/10.1086/700073 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
From extreme to mainstream: How social norms unravel
| Authors | Bursztyn, Egorov, Fiorin |
| Year | 2018 |
| Type | Working Paper |
| Abstract | Social norms are typically thought to be persistent and long-lasting, sometimes surviving through growth, recessions, and regime changes. In some cases, however, they can quickly change. This paper examines the unraveling of social norms in communication when new information becomes available, e.g., aggregated through elections. We build a model of strategic communication between citizens who can hold one of two mutually exclusive opinions. In our model, agents communicate their opinions to each other, and senders care about receivers' approval. As a result, senders are more likely to express the more popular opinion, while receivers make less inference about senders who stated the popular view. We test these predictions using two experiments. In the main experiment, we identify the causal effect of Donald Trump's rise in political popularity on individuals' willingness to publicly express xenophobic views. Participants in the experiment are offered a bonus reward if they authorize researchers to make a donation to an anti-immigration organization on their behalf. Participants who expect their decision to be observed by the surveyor are significantly less likely to accept the offer than those expecting an anonymous choice. Increases in participants' perceptions of Trump's popularity (either through experimental variation or through the "natural experiment" of his victory) eliminate the wedge between private and public behavior. A second experiment uses dictator games to show that participants judge a person less negatively for publicly expressing (but not for privately holding) a political view they disagree with if that person's social environment is one where the majority of people holds that view. |
| Keywords | Social communication, belief updates, experiment |
| URL | https://www.nber.org/papers/w23415 |
| Tags | Experimental / Survey-Based Empirical | Social Network Structure | Theory |
Status goods: Experimental evidence from platinum credit cards
| Authors | Bursztyn, Ferman, Fiorin, Kanz, Rao |
| Journal | Quarterly Journal of Economics |
| Year | 2018 |
| Type | Published Paper |
| Abstract | This article provides field-experimental evidence on status goods. We work with an Indonesian bank that markets platinum credit cards to high-income customers. In a first experiment, we show that demand for the platinum card exceeds demand for a nondescript control product with identical benefits, suggesting demand for the pure status aspect of the card. Transaction data reveal that platinum cards are more likely to be used in social contexts, implying social image motivations. In a second experiment, we provide evidence of positional externalities from the consumption of these status goods. A final experiment provides suggestive evidence that increasing self-esteem causally reduces demand for status goods,indicating that social image might be a substitute for self-image. |
| Keywords | Social status, consumer behavior, self-esteem, positional externalities |
| URL | https://doi.org/10.1093/qje/qjx048 |
| Tags | Consumer Decisions | Experimental / Survey-Based Empirical |
The effect of social density on word of mouth
| Authors | Consiglio, Angelis, Costabile |
| Journal | Journal of Consumer Research |
| Year | 2018 |
| Type | Published Paper |
| Abstract | This research investigates whether a contextual factor-social density, defined as the number of people in a given area-influences consumers' propensity to share information. We propose that high- (vs. low-) density settings make consumers experience a loss of perceived control, which in turn makes them more likely to engage in word of mouth to restore it. Six studies, conducted online as well as in laboratory and naturalistic settings, provide support for this hypothesis. We demonstrate that social density increases the likelihood of sharing information with others and that a person's chronic need for control moderates this effect. Consistent with the proposed process, the effect of social density on information sharing is attenuated when participants have the opportunity to restore control before they engage in word of mouth. We also provide evidence that sharing information restores perceived control in high-density environments, and we disentangle the effect of social density from that of physical proximity. |
| Keywords | Social density, compensatory control, word of mouth |
| URL | https://doi.org/10.1093/jcr/ucy009 |
| Tags | Consumer Decisions | Experimental / Survey-Based Empirical |
Partisan bias, economic expectations, and household spending
| Authors | Mian, Sufi, Khoshkhou |
| Year | 2018 |
| Type | Working Paper |
| Abstract | The well-documented rise in political polarization among the U.S. electorate over the past 20 years has been accompanied by a substantial increase in the effect of partisan bias on survey-based measures of economic expectations. Individuals have a more optimistic view on future economic conditions when they are more closely affiliated with the party that controls the White House, and this tendency has increased significantly over time. Individuals report a large shift in economic expectations based on partisan affiliation after the 2008 and 2016 elections, but administrative data on spending shows no effect of these shifts on actual household spending. |
| Keywords | Consumer confidence, government, economic, policy, sentiment, news, noise, spending, consumption, elections, voting, polarization, Trump, elections |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2620828 |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical |
Humblebragging: A distinct-and ineffective-self-presentation strategy
| Authors | Sezer, Gino, Norton |
| Journal | Journal of Personality and Social Psychology |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Self-presentation is a fundamental aspect of social life, with myriad critical outcomes dependent on others' impressions. We identify and offer the first empirical investigation of a prevalent, yet understudied, self-presentation strategy: humblebragging. Across 9 studies, including a week-long diary study and a field experiment, we identify humblebragging-bragging masked by a complaint or humility-as a common, conceptually distinct, and ineffective form of self-presentation. We first document the ubiquity of humblebragging across several domains, from everyday life to social media. We then show that both forms of humblebragging-complaint-based or humility-based--are less effective than straightforward bragging, as they reduce liking, perceived competence, compliance with requests, and financial generosity. Despite being more common, complaint-based humblebrags are less effective than humility-based humblebrags, and are even less effective than simply complaining. We show that people choose to deploy humblebrags particularly when motivated to both elicit sympathy and impress others. Despite the belief that combining bragging with complaining or humility confers the benefits of each strategy, we find that humblebragging confers the benefits of neither, instead backfiring because it is seen as insincere. |
| Keywords | Humblebragging, impression management, self-presentation, interpersonal perception, sincerity |
| URL | https://doi.org/10.1037/pspi0000108 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
In the red: The effects of color on investment behavior
| Authors | Bazley, Cronqvist, Mormann |
| Year | 2017 |
| Type | Working Paper |
| Abstract | Financial decisions in today's society are made in environments that involve color stimuli. In this paper, we perform an empirical analysis of the effects of color on investment behavior. First, we find that when investors are displayed potential losses in red, risk taking is reduced. Second, when investors are shown past negative stock price paths in red, expectations about future stock returns are reduced. Consistent with red causing "avoidance behavior", red color reduces investors' propensity to purchase stocks. The findings are robust to a series of checks involving colorblind investors and alternative colors to control for salience effects. Finally, the effects are muted in a cultural setting, e.g., China, where red is not used to visualize financial losses. A contribution of this study is to introduce hypotheses from color psychology and visual science to enhance our understanding of the behavior of individual investors. |
| Keywords | Visual finance, investor behavior, cultural finance |
| URL | https://www.chapman.edu/research/institutes-and-centers/economic-science-institute/_files/ifree-papers-and-photos/paper-cronqvist.pdf |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Credit scores, social capital, and stock market participation
| Authors | Bricker, Li |
| Year | 2017 |
| Type | Working Paper |
| Abstract | While a rapidly growing body of research underscores the influence of social capital on financial decisions and economic developments, objective data-based measurements of social capital are lacking. We introduce average credit scores as an indicator of a community's social capital and present evidence that this measure is consistent with, but richer and more robust than, those used in the existing literature, such as electoral participation, blood donations, and survey-based measures. Merging unique proprietary credit score data with two nationwide representative household surveys, we show that households residing in communities with higher social capital are more likely to invest in stocks, even after controlling for a rich set of socioeconomic, preferential, neighborhood, and demographic characteristics. Notably, such a relationship is robustly observed only when social capital is measured using community average credit scores. Consistent with the notion that social capital and trust promote stock investment, we find the following: first, the association between average credit score and stock ownership is more pronounced among the lower educated; second, social capital levels of the county where one grew up appear to have a lasting influence on future stock investment; and third, investors who did not own stocks before have a greater chance of entering the stock market a few years after they relocate to higher-score communities. |
| Keywords | Credit scores, social capital, stock market participation, trust |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2911760 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Moral incentives in credit card debt repayment: Evidence from a field experiment
| Authors | Bursztyn, Fiorin, Gottlieb, Kanz |
| Journal | Journal of Political Economy |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We study the role of morality in debt repayment, using an experiment with the credit card customers of a large Islamic bank in Indonesia. In our main treatment, clients receive a text message stating that "non-repayment of debts by someone who is able to repay is an injustice." This moral appeal decreases delinquency by 4.4 percentage points from a baseline of 66 percent and reduces default among customers with the highest ex ante credit risk. Additional treatments help benchmark the effects against direct financial incentives and rule out competing explanations, such as reminder effects, priming religion, and provision of new information. |
| Keywords | Moral norm, financial behavior, field experiment |
| URL | https://doi.org/10.1086/701605 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |