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Peer Effects Explained: An Experimental Study of Social Pressure and Social Learning in Consumption Decisions

Wendle, David LU (2024) NEKN01 20241
Department of Economics
Abstract
In various consumption decisions, from what clothes to wear to what investments to make, individuals are influenced by the choices of others. Such peer effects sometimes lead to herd behavior in the form of, e.g., fads and financial bubbles. To understand these processes, it is crucial to understand the underlying mechanisms. The novel experimental design of this paper allows for a separation of peer effects into social pressure and social learning. The impact of these two channels is measured and compared across two different consumption decisions. In a choice between two water bottles of different designs, no evidence of either social pressure or social learning is found. However, in a choice between two stock indexes to invest in, the... (More)
In various consumption decisions, from what clothes to wear to what investments to make, individuals are influenced by the choices of others. Such peer effects sometimes lead to herd behavior in the form of, e.g., fads and financial bubbles. To understand these processes, it is crucial to understand the underlying mechanisms. The novel experimental design of this paper allows for a separation of peer effects into social pressure and social learning. The impact of these two channels is measured and compared across two different consumption decisions. In a choice between two water bottles of different designs, no evidence of either social pressure or social learning is found. However, in a choice between two stock indexes to invest in, the results show evidence of both social pressure and social learning. These findings contribute to a largely unexplored area of research and bring attention to the importance of social pressure in economic decisions, which has oftentimes been neglected in the economics literature. (Less)
Please use this url to cite or link to this publication:
author
Wendle, David LU
supervisor
organization
course
NEKN01 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
Peer effects, social pressure, social learning, herd behavior, experiment
language
English
id
9157611
date added to LUP
2024-10-01 13:10:06
date last changed
2024-10-01 13:10:06
@misc{9157611,
  abstract     = {{In various consumption decisions, from what clothes to wear to what investments to make, individuals are influenced by the choices of others. Such peer effects sometimes lead to herd behavior in the form of, e.g., fads and financial bubbles. To understand these processes, it is crucial to understand the underlying mechanisms. The novel experimental design of this paper allows for a separation of peer effects into social pressure and social learning. The impact of these two channels is measured and compared across two different consumption decisions. In a choice between two water bottles of different designs, no evidence of either social pressure or social learning is found. However, in a choice between two stock indexes to invest in, the results show evidence of both social pressure and social learning. These findings contribute to a largely unexplored area of research and bring attention to the importance of social pressure in economic decisions, which has oftentimes been neglected in the economics literature.}},
  author       = {{Wendle, David}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Peer Effects Explained: An Experimental Study of Social Pressure and Social Learning in Consumption Decisions}},
  year         = {{2024}},
}