Innovating to invest: The role of basic education
| Authors | D'Acunto |
| Year | 2017 |
| Type | Working Paper |
| Abstract | Despite the focus of entrepreneurial finance research on high-tech innovation, more than 75% of innovations are new processes and products in traditional manufacturing. I show that basic education is a key determinant of innovation in traditional industries. I document that manufacturers in European regions with 10% more high school graduates file 15% more patents, and invest 4% more in capital expenditures. To absorb spatially correlated unobservables, I construct Virtual Regions that only exploit the variation in basic education across nearby locations. To address the possibility of reverse causality, I establish that regional basic education persists for decades, and I use the quasi-exogenous diffusion of the printing press after 1450 to instrument for historical basic education. The results offer a human capital channel for innovation that feeds into the innovation-to-investment literature in finance. |
| Keywords | Enterprise innovation, human capital investment, historical shocks, literacy distribution |
| URL | https://www.eief.it/files/2015/01/02-jmp-eief_dacunto.pdf |
| Tags | Archival Empirical | Evolutionary Finance | Experimental / Survey-Based Empirical | Manager / Firm Behavior | Productivity Spillovers |
Social capital and debt contracting: Evidence from bank loans and public bonds
| Authors | Hasan, Hoi, Wu and Zhang |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2017 |
| Type | Published Paper |
| Abstract | We find that firms headquartered in U.S. counties with higher levels of social capital incur lower bank loan spreads. This finding is robust to using organ donation as an alternative social capital measure and incremental to the effects of religiosity, corporate social responsibility, and tax avoidance. We identify the causal relation using companies with a social-capital-changing headquarters relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer public bonds over bank loans. We conclude that debt holders perceive social capital as providing environmental pressure that constrains opportunistic firm behaviors in debt contracting. |
| Keywords | Social capital, bank loan cost, firm's financing decisions, debt contracting, investors' decisions |
| URL | https://doi.org/10.1017/S0022109017000205 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior |
It doesn't hurt to ask: Question-asking increases liking
| Authors | Huang, Yeomans, Brooks, Minson, Gino |
| Journal | Journal of Personality and Social Psychology |
| Year | 2017 |
| Type | Published Paper |
| Abstract | Conversation is a fundamental human experience that is necessary to pursue intrapersonal and interpersonal goals across myriad contexts, relationships, and modes of communication. In the current research, we isolate the role of an understudied conversational behavior: question-asking. Across 3 studies of live dyadic conversations, we identify a robust and consistent relationship between question-asking and liking: people who ask more questions, particularly follow-up questions, are better liked by their conversation partners. When people are instructed to ask more questions, they are perceived as higher in responsiveness, an interpersonal construct that captures listening, understanding, validation, and care. We measure responsiveness with an attitudinal measure from previous research as well as a novel behavioral measure: the number of follow-up questions one asks. In both cases, responsiveness explains the effect of question-asking on liking. In addition to analyzing live get-to-know-you conversations online, we also studied face-to-face speed-dating conversations. We trained a natural language processing algorithm as a "follow-up question detector" that we applied to our speed-dating data (and can be applied to any text data to more deeply understand question-asking dynamics). The follow-up question rate established by the algorithm showed that speed daters who ask more follow-up questions during their dates are more likely to elicit agreement for second dates from their partners, a behavioral indicator of liking. We also find that, despite the persistent and beneficial effects of asking questions, people do not anticipate that question-asking increases interpersonal liking. |
| URL | https://doi.org/10.1037/pspi0000097 |
| Tags | Experimental / Survey-Based Empirical | Social Transmission Biases |
Socioeconomic status and learning from financial information
| Authors | Miu, Kuhnen |
| Journal | Journal of Financial Economics |
| Year | 2017 |
| Type | Published Paper |
| Abstract | The majority of lower socioeconomic status (SES) households in the U.S. and Europe do not have stock investments, which is detrimental to wealth accumulation. Here, we examine one explanation for this puzzling fact, namely, that economic adversity may influence how people learn from financial information. Using experimental and survey data from the U.S. and Romania, we find that lower SES individuals form more pessimistic beliefs about the distribution of stock returns and are less likely to invest in stocks when these investments are likely to have good outcomes. SES-related differences in pessimism may help explain variation in investments across households. |
| Keywords | Socioeconomic status, learning, beliefs, household finance, stock market participation |
| URL | https://doi.org/10.1016/j.jfineco.2017.03.002 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Social networks and housing markets
| Authors | Baily, Cao, Kuchler, Stroebel |
| Year | 2016 |
| Type | Working Paper |
| Abstract | We document that the recent house price experiences within an individual's social network affect her perceptions of the attractiveness of property investments, and through this channel have large effects on her housing market activity. Our data combine anonymized social network information from Facebook with housing transaction data and a survey. We first show that in the survey, individuals whose geographically-distant friends experienced larger recent house price increases consider local property a more attractive investment, with bigger effects for individuals who regularly discuss such investments with their friends. Based on these findings, we introduce a new methodology to document large effects of housing market expectations on individual housing investment decisions and aggregate housing market outcomes. Our approach exploits plausibly-exogenous variation in the recent house price experiences of individuals' geographically-distant friends as shifters of those individuals' local housing market expectations. Individuals whose friends experienced a 5 percentage points larger house price increase over the previous 24 months (i) are 3.1 percentage points more likely to transition from renting to owning over a two-year period, (ii) buy a 1.7 percent larger house, (iii) pay 3.3 percent more for a given house, and (iv) make a 7% larger downpayment. Similarly, when homeowners' friends experience less positive house price changes, these homeowners are more likely to become renters, and more likely to sell their property at a lower price. We also find that when individuals observe a higher dispersion of house price experiences across their friends, this has a negative effect on their housing investments. Finally, we show that these individual-level responses aggregate up to affect county-level house prices and trading volume. Our findings suggest that the house price experiences of geographically-distant friends might provide a valid instrument for local house price growth. |
| Keywords | House price, social contagion, investor behaviors, market expectation |
| URL | https://www.nber.org/papers/w22258 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Social Network Structure |
Sharing with friends versus strangers: How interpersonal closeness influences word-of-mouth valence
| Authors | Dubois, Bonezzi, Angelis |
| Journal | Journal of Marketing Research |
| Year | 2016 |
| Type | Published Paper |
| Abstract | How does interpersonal closeness (IC)--the perceived psychological proximity between a sender and a recipient--influence word-of-mouth (WOM) valence? The current research proposes that high levels of IC tend to increase the negativity of WOM shared, whereas low levels of IC tend to increase the positivity of WOM shared. The authors hypothesize that this effect is due to low versus high levels of IC triggering distinct psychological motives. Low IC activates the motive to self-enhance, and communicating positive information is typically more instrumental to this motive than communicating negative information. In contrast, high IC activates the motive to protect others, and communicating negative information is typically more instrumental to this motive than communicating positive information. Four experiments provide evidence for the basic effect and the underlying role of consumers' motives to self-enhance and protect others through mediation and moderation. The authors discuss implications for understanding how WOM spreads across strongly versus weakly tied social networks. |
| Keywords | Word of mouth, word-of-mouth valence, interpersonal closeness, self-enhancement, social media |
| URL | https://doi.org/10.1509/jmr.13.0312 |
| Tags | Consumer Decisions | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Network Structure |
Estimating peer effects in networks with peer encouragement designs
| Authors | Eckles, Kizilcec, Bakshy |
| Journal | Proceedings of the National Academy of Sciences of the United States of America |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Peer effects, in which the behavior of an individual is affected by the behavior of their peers, are central to social science. Because peer effects are often confounded with homophily and common external causes, recent work has used randomized experiments to estimate effects of specific peer behaviors. These experiments have often relied on the experimenter being able to randomly modulate mechanisms by which peer behavior is transmitted to a focal individual. We describe experimental designs that instead randomly assign individuals' peers to encouragements to behaviors that directly affect those individuals. We illustrate this method with a large peer encouragement design on Facebook for estimating the effects of receiving feedback from peers on posts shared by focal individuals. We find evidence for substantial effects of receiving marginal feedback on multiple behaviors, including giving feedback to others and continued posting. These findings provide experimental evidence for the role of behaviors directed at specific individuals in the adoption and continued use of communication technologies. In comparison, observational estimates differ substantially, both underestimating and overestimating effects, suggesting that researchers and policy makers should be cautious in relying on them. |
| Keywords | Social interactions, social networks, causal inference, experimental design |
| URL | https://doi.org/10.1073/pnas.1511201113 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Media and Textual Analysis |
Peer pressure: Social interaction and the disposition effect
| Authors | Heimer |
| Journal | The Review of Financial Studies |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Social interaction contributes to some traders' disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader's disposition effect. Traders connected in the network develop correlated levels of the disposition effect, a finding that can be replicated using workhorse data from a large discount brokerage. |
| URL | https://econpapers.repec.org/article/ouprfinst/v_3a29_3ay_3a2016_3ai_3a11_3ap_3a3177-3209..htm |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
The positivity bias and prosocial deception on facebook
| Authors | Spottswood, Hancock |
| Journal | Computers in Human Behavior |
| Year | 2016 |
| Type | Published Paper |
| Abstract | Can the positivity bias, observed across various Social Network Sites (SNSs), predict the use of prosocial lies in a SNS such as Facebook? The positivity bias may be a product of politeness norms (i.e., positive face concern) that have influenced communication phenomena before these sites existed. In addition, positive face concern may also be affected by unconscious cues or primes that promote prosocial behavior on Facebook. We conducted an online experiment using current Facebook users to examine how positive face concern and surveillance primes affect prosocial lying in public and private Facebook contexts. Although positive face concern and publicness predicted the use of prosocial lying, positive face concern was not affected by the publicness and surveillance primes did not affect positive face concern or the use of prosocial lies in our study. This hints towards the nuance of positive face concern and the potential limitations of surveillance primes on prosocial lying behavior. |
| Keywords | Facebook, deception, positive face, surveillance primes |
| URL | https://doi.org/10.1016/j.chb.2016.08.019 |
| Tags | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Transmission Biases |
The effect of providing peer information on retirement savings decisions
| Authors | Beshears, Choi, Laibson, Madrian, Milkman |
| Journal | Journal of Finance |
| Year | 2015 |
| Type | Published Paper |
| Abstract | Using a field experiment in a 401(k) plan, we measure the effect of disseminating information about peer behavior on savings. Low-saving employees received simplified plan enrollment or contribution increase forms. A randomized subset of forms stated the fraction of age-matched coworkers participating in the plan or age-matched participants contributing at least 6% of pay to the plan. We document an oppositional reaction: the presence of peer information decreased the savings of nonparticipants who were ineligible for 401(k) automatic enrollment, and higher observed peer savings rates also decreased savings. Discouragement from upward social comparisons seems to drive this reaction. |
| URL | https://doi.org/10.1111/jofi.12258 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Tear down this wall street: Anti-market rhetoric, motivated beliefs, and investment
| Authors | D'Acunto |
| Year | 2015 |
| Type | Working Paper |
| Abstract | Anti-market ideology pre-exists modern capitalism, is diffused in capitalistic economies, and peaks during economic crises. Is anti-market ideology an inert cultural by-product of crises, or does it affect economic decision making? If it does, through which channels? I manipulate exposure to anti-market ideology in an artefactual field experiment. Subjects exposed to anti-market ideology invest less often and less money in risky financial opportunities than controls. The effect is stronger for women, older, and college-educated subjects. Risk aversion does not change with exposure. Instead, treated subjects have a more negative view of the financial sector, even if they do not realize they are exposed to anti-market ideology. They react to positive news but not to negative news regarding investment payoffs in subsequent investment choices. These results are consistent with context-dependent beliefs. Contrary to behavioral biases, anti-market ideology makes more sophisticated agents deviate from neoclassical decision-making. |
| Keywords | Cultural economics, behavioral finance, norms and values, context-dependent beliefs, trust, priming |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2705545 |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Corporate policies of republican managers
| Authors | Hutton, Jiang and Kumar |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We demonstrate that personal political preferences of corporate managers influence corporate policies. Specifically, Republican managers who are likely to have conservative personal ideologies adopt and maintain more conservative corporate policies. Those firms have lower levels of corporate debt, lower capital and research and development (R&D) expenditures, less risky investments, but higher profitability. Using the 9/11 terrorist attacks and Sept. 2008 Lehman Brothers bankruptcy as natural experiments, we demonstrate that investment policies of Republican managers became more conservative following these exogenous uncertainty-increasing events. Furthermore, around chief executive officer (CEO) turnovers, including CEO deaths, firm leverage policy becomes more conservative when managerial conservatism increases. |
| Keywords | Political ideology, manager's behaviors, corporate policy |
| URL | https://doi.org/10.1017/S0022109014000702 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
Network effects on worker productivity
| Authors | Lindquist, Sauermann, Zenou |
| Year | 2015 |
| Type | Working Paper |
| Abstract | We use data from an in-house call center of a multi-national mobile network operator to study how co-worker productivity affects worker productivity via network effects. We also exploit data from a field experiment to analyze how exogenous changes in worker productivity due to on-the-job training affect co-worker productivity, including non-trained workers. We show that there are strong network effects in co-worker productivity. This effect is driven by conformist behavior. We also show that exposure to trained workers increases the productivity of non-trained workers. This effect works through strategic complementarities (knowledge spillovers). We demonstrate how our network model of worker productivity can be used to inform a variety of practical decisions faced by personnel managers including the design of optimal training policy. |
| Keywords | On-the-job training, peer effects, social networks, worker productivity |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2689150 |
| Tags | Experimental / Survey-Based Empirical | Productivity Spillovers |
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) |
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 |
| Year | 2013 |
| Type | Working Paper |
| Abstract | We examine how participation in a microfinance program diffuses through social networks. We collected detailed demographic and social network data in 43 villages in South India before microfinance was introduced in those villages and then tracked eventual participation. We exploit exogenous variation in the importance (in a network sense) of the people who were first informed about the program, "the injection points". Microfinance participation is higher when the injection points have higher eigenvector centrality. We estimate structural models of diffusion that allow us to (i) determine the relative roles of basic information transmission versus other forms of peer influence, and (ii) distinguish information passing by participants and non-participants. We find that participants are significantly more likely to pass information on to friends and acquaintances than informed non-participants, but that information passing by non-participants is still substantial and significant, accounting for roughly a third of informedness and participation. We also find that, conditioned on being informed, an individual's decision is not significantly affected by the participation of her acquaintances. |
| Keywords | Social network centralities, information transmission, microfinance program |
| URL | https://www.nber.org/papers/w17743 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | 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 |