Visibility Bias in the Transmission of Consumption Beliefs and Undersaving

Bing Han, David Hirshleifer and Johan Walden

Journal of Finance, 2023, vol. 78, issue 3, 1647-1704

Abstract: We model visibility bias in the social transmission of consumption behavior. When consumption is more salient than nonconsumption, people perceive that others are consuming heavily, and infer that future prospects are favorable. This increases aggregate consumption in a positive feedback loop. A distinctive implication is that disclosure policy interventions can ameliorate undersaving. In contrast with wealth‐signaling models, information asymmetry about wealth reduces overconsumption. The model predicts that saving is influenced by social connectedness, observation biases, and demographic structure, and provides new insight into savings rates. These predictions are distinct from other common models of consumption distortions.

Date: 2023
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https://doi.org/10.1111/jofi.13223

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Working Paper: Visibility Bias in the Transmission of Consumption Beliefs and Undersaving (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:78:y:2023:i:3:p:1647-1704

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