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Social Influence and Networks

Paper Session

Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM

Loews Philadelphia, Commonwealth Hall A1
Hosted By: American Finance Association
  • Chair: Marina Niessner, Yale University

Why Does Portfolio Choice Correlate Across Generations?

Samuli Knüpfer
,
BI Norwegian Business School
Elias Rantapuska
,
Aalto University
Matti Sarvimäki
,
Aalto University

Abstract

We find that investors tend to hold the same securities as their parents. Instrumental variables that exploit social networks and a natural experiment based on mergers allow us to attribute the security-choice correlation to social influence within families. This influence runs not only from parents to children, but also in the opposite direction. Security holdings correlate more when family members are more likely to communicate and when they are more susceptible to social influence. The identical security holdings that social influence generates largely explain why risk-return profiles of household portfolios correlate across generations.

Keeping Up with the Ponzis

Ville Rantala
,
University of Miami

Abstract

I study how peers influence financial decision-making in a large socially spreading Ponzi scheme. Investors could join the scheme only by personal invitation from an existing member, and I can observe inviter-invitee relationships among the participants. Controlling for personal characteristics and inviter fixed effects, investors invest more if their inviter has comparatively higher income, age, and education. The marginal effect of the inviter’s income is highest when it is just above the invitee’s income, consistent with relative wealth concerns influencing decision-making. I also find that social behavior and investment behavior are correlated: Inviters invest more compared to non-inviters.

Tear Down This Wall Street: Anti-market Rhetoric and Investment

Francesco D'Acunto
,
University of Maryland

Abstract

Anti-market rhetoric pre-exists modern capitalism, is diffused in capitalistic economies, and peaks during economic crises. Is anti-market rhetoric an inert cultural by-product of crises, or does it affect economic decision-making? If it does, through which channels? To avoid the confounding economic shocks that accompany economic crises, I manipulate exposure to anti-market rhetoric in an artefactual field experiment. Subjects exposed to anti-market rhetoric invest less often and less money in risky opportunities than controls. 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 rhetoric. They react to positive news but not to negative news regarding investment outcomes in subsequent investment choices, as predicted by context-dependent beliefs. The effect is stronger for women, older, and college-educated subjects. Like motivated beliefs, anti-market rhetoric makes more sophisticated agents deviate from neoclassical decision-making.
Discussant(s)
Juhani T. Linnainmaa
,
University of Southern California
Florian Ederer
,
Yale University
Cary Frydman
,
University of Southern California
JEL Classifications
  • G0 - General