DP14840 Informative Social Interactions

Author(s): Luc Arrondel, Hector F. Calvo Pardo, Chryssi Giannitsarou, Michael Haliassos
Publication Date: June 2020
Date Revised: October 2020
Keyword(s): household portfolio choice, Information networks, peer effects, Social interactions, subjective expectations
JEL(s): D12, D83, D84, G11, G5
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14840

Household finances are confidential and discussions are limited to a subset of peers. We collect representative survey data to examine whether interactions with inner and outer social circles influence return perceptions, expectations, and exposure to a widely known financial instrument in a developed economy with multiple information sources. Findings support the relevance of a small "financial circle". Perceived prevalence of information or participation in the financial circle improves expectation accuracy by improving accuracy of perceived past returns, and influences stock participation and exposure beyond expectations. Imitation of the outer circle, if present, is not based on return perceptions or expectations.