Discussion paper
DP14840 Informative Social Interactions
Household finances are confidential and discussions are limited to a subset of peers. We collect novel representative survey data to examine separately whether interac- tions 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 a respondent’s connectedness, proxied by perceived prevalence of information or participation in the small financial circle, improves expectation accuracy indirectly, through boosting accuracy of perceived past returns; and influences stock participation and exposure not only by influencing expectations, but also directly.
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