Nature or nurture: What determines investor behavior?
| Authors | Barnea, Cronqvist, Siegel |
| Journal | Journal of Financial Economics |
| Year | 2010 |
| Type | Published Paper |
| Abstract | Using data on identical and fraternal twins' complete financial portfolios, we decompose the cross-sectional variation in investor behavior. We find that a genetic factor explains about one-third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experience. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation-the relative amount invested in equities and the portfolio volatility-to genetic variation in risk preferences. |
| Keywords | Portfolio choice, investor heterogeneity, behavioral genetics |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X10001777 |
| Tags | Archival Empirical | Evolutionary Finance | Financing- and Investment Decisions (Individual) | Social Network Structure |
Asymmetric social iteractions in physician prescription behavior: The role of opinion leaders
| Authors | Nair, Manchanda, Bhatia |
| Journal | Journal of Marketing Research |
| Year | 2010 |
| Type | Published Paper |
| Abstract | The authors quantify the impact of social interactions and peer effects in the context of physicians' prescription choices. Using detailed individual-level prescription data, along with self-reported social network information, the authors document that physician prescription behavior is significantly influenced by the behavior of research-active specialists, or "opinion leaders," in the physician's reference group. The authors leverage a natural experiment in the category: New guidelines released about the therapeutic nature of the focal drug generated conditions in which physicians were more likely to be influenced by the behavior of specialist physicians in their network. The authors (1) find important, statistically significant peer effects that are robust across model specifications; (2) document asymmetries in response to marketing activity across nominators and opinion leaders; (3) measure the incremental value to firms of directing targeted sales force activity to these opinion leaders; and (4) present estimates of the social multiplier of detailing in this category. |
| Keywords | Experimental economics, bibliometrics, lab experiments, field experiments |
| URL | https://www.jstor.org/stable/20751550 |
| Tags | Archival Empirical | Consumer Decisions | Social Network Structure |
Distinguishing influence-based contagion from homophily-driven diffusion in dynamic networks
| Authors | Aral, Muchnik, Sundararajan |
| Journal | Proceedings of the National Academy of Sciences |
| Year | 2009 |
| Type | Published Paper |
| Abstract | Node characteristics and behaviors are often correlated with the structure of social networks over time. While evidence of this type of assortative mixing and temporal clustering of behaviors among linked nodes is used to support claims of peer influence and social contagion in networks, homophily may also explain such evidence.Here we develop a dynamic matched sample estimation framework to distinguish influence and homophily effects in dynamic networks,and we apply this framework to a global instant messaging network of 27.4 million users, using data on the day-by-day adoption of a mobile service application and users' longitudinal behavioral, demo-graphic, and geographic data. We find that previous methods over-estimate peer influence in product adoption decisions in this network by 300-700%, and that homophily explains>50% of the perceived behavioral contagion. These findings and methods are essential to both our understanding of the mechanisms that drive contagions in networks and our knowledge of how to propagate or combat them in domains as diverse as epidemiology, marketing, development economics, and public health. |
| Keywords | dynamic matching estimation, peer influence, social networks, identification |
| URL | https://www.pnas.org/doi/abs/10.1073/pnas.0908800106 |
| Tags | Archival Empirical | Social Network Structure |
Social interactions and entrepreneurial activity
| Authors | Giannetti, Simonov |
| Journal | Journal of Economics and Management Strategy |
| Year | 2009 |
| Type | Published Paper |
| Abstract | We show that individuals residing in highly entrepreneurial neighborhoods are more likely to become entrepreneurs and invest more into their own businesses, even though their entrepreneurial profits are lower and their alternative job opportunities more attractive. Our results suggest that peer effects create nonpecuniary benefits from entrepreneurial activity and play an important role in the decision to become an entrepreneur. Alternative explanations, such as entry costs, social learning, and informal credit markets, are not supported by the data. |
| Keywords | Social interaction, peer effects, entrepreneurial activity, entrepreneurs, spillovers |
| URL | https://doi.org/10.1111/j.1530-9134.2009.00226.x |
| Tags | Archival Empirical | Productivity Spillovers | Social Network Structure |
Social interaction and stock-market participation
| Authors | Hong, Kubic, Stein |
| Journal | The Journal of Finance |
| Year | 2004 |
| Type | Published Paper |
| Abstract | We propose that stock-market participation is influenced by social interaction. In our model, any given "social" investor finds the market more attractive when more of his peers participate. We test this theory using data from the Health and Retirement Study, and find that social households - those who interact with their neighbors, or attend church - are substantially more likely to invest in the market than non-social households, controlling for wealth, race, education, and risk tolerance. Moreover, consistent with a peer-effects story, the impact of sociability is stronger in states where stock-market participation rates are higher. |
| Keywords | Social interaction, household investment decisions, word-of-mouth effect, enjoyment-from-talking-about-the-market, peer effects |
| URL | https://doi.org/10.1111/j.1540-6261.2004.00629.x |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure |
Persuasion bias, social influence, and unidimensional opinions
| Authors | DeMarzo, Vayanos, Zwiebel |
| Journal | Quarterly Journal of Economics |
| Year | 2003 |
| Type | Published Paper |
| Abstract | We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one's influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals' opinions over a multidimensional set of issues converge to a single "left-right" spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications. |
| URL | https://doi.org/10.1162/00335530360698469 |
| Tags | Social Network Structure | Social Transmission Biases | Theory |
The socio-economic dynamics of speculative markets: Interacting agents, chaos, and the fat tails of return distributions
| Authors | Lux |
| Journal | Journal of economic behavior & organization |
| Year | 1998 |
| Type | Published Paper |
| Abstract | This paper develops a model of the social and economic interaction of speculators in a securities or foreign exchange market. Both chartist and fundamentalist strategies are pursued by traders. The formalization of chartists behavior combines elements of mimetic contagion and trend chasing leading to waves of optimism or pessimism. Furthermore, changes of strategies from chartist to fundamentalist behavior and vice versa occur because speculators compare the performance of both strategies. The dynamic system under study encompasses the time development of the distribution of attitudes among traders as well as price adjustment. Chaotic attractors are found within a broad range of parameter values. The distributions of returns derived from chaotic trajectories of the model share important characteristics of empirical data: they exhibit high peaks around the mean as well as fat tails (leptokurtosis) and become less leptokurtotic under time aggregation. |
| Keywords | Herd behavior, bubbles, leptokurtosis |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0167268197000887 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |