Understanding Peer Effects in Financial Decisions: Evidence from a Field Experiment

Leonardo Bursztyn, Florian Ederer, Bruno Ferman, Noam Yuchtman

NBER Working Paper No. 18241
Issued in July 2012
NBER Program(s):   AP   CF   LS

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 find that both channels have statistically and economically significant effects on investment decisions. These results can help shed light on the mechanisms underlying herding behavior in financial markets.

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This paper was revised on February 14, 2013

Acknowledgments

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