DP14840 Informative Social Interactions

Author(s): Luc Arrondel, Hector F. Calvo Pardo, Chryssi Giannitsarou, Michael Haliassos
Publication Date: June 2020
Date Revised: May 2021
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 novel representative survey data to examine separately 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. We find that perceived prevalence of information or participation in the small financial circle improves expectation accuracy by boosting accuracy of perceived past returns; and influences stock participation and exposure not only through expectations, but also directly. We find little evidence of mindless imitation of the outer social circle in stockholding.