The Effect of Social Comparison on Debt Taking: Experimental Evidence

Antonia Grohmann and Melanie Koch

No 1996, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: A number of studies show that there is a link between social comparison and high levels of household debt. However, the exact mechanisms behind this link are not yet well understood. In this paper, we disentangle two mechanisms by performing a lab experiment designed to study the effects of social image concerns and peer information on consumption choices financed through debt taking. We find that having to announce one’s consumption decision publicly makes participants less likely to take debt and more likely to leave money on the table. The more information participants receive about other participants’ choices, the more they seem to conform to these choices, leading to slightly increased debt taking and leaving money on the table.

Keywords: Household finance; lab experiment; social comparison; peer effects (search for similar items in EconPapers)
JEL-codes: D14 D91 G51 (search for similar items in EconPapers)
Pages: 35, XXX p.
Date: 2022
New Economics Papers: this item is included in nep-ban and nep-exp
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