Social Ties and the Demand for Financial Services

Eleonora Patacchini () and Edoardo Rainone
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Eleonora Patacchini: Cornell University

Journal of Financial Services Research, 2017, vol. 52, issue 1, No 3, 35-88

Abstract: Abstract This paper studies the importance of social interactions for the adoption of financial services among young adults. Specifically, we investigate whether, how, and why financial decisions among interacting agents are correlated. We exploit a unique dataset of friendship networks in the United States and a novel estimation strategy that accounts for possibly endogenous network formation. We find that not all social contacts are equally important: only long-lasting relationships influence financial decisions. Moreover, this peer influence exists only in cohesive social structures. This evidence is consistent with an important role of trust in financial decisions. When agents consider whether or not to adopt a financial instrument, they face a risk and may place greater value on information coming from agents they trust. These results can help explain the importance of face-to-face social contacts for financial decisions.

Keywords: Financial market participation; Financial literacy; Social interactions; Trust; Network formation; Endogeneity; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C11 C31 D1 D14 D81 D85 G11 M31 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s10693-017-0279-0

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