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The Effect of Social Comparison on Debt Taking: Experimental Evidence

Antonia Grohmann and Melanie Koch
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Melanie Koch: HU Berlin

No 227, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

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 perform a lab experiment designed to study the effects of social image concerns and peer information on consumption choices that can be financed through debt taking. We find that having to announce one's consumption decision publicly leads to leaving money on the table, which is the opposite of what we expected. Being informed about other participants' choices leads to conformity in choices between participants.

Keywords: household finance; lab experiment; social comparison; peer effects (search for similar items in EconPapers)
JEL-codes: D12 D14 D91 (search for similar items in EconPapers)
Date: 2019-12-19
New Economics Papers: this item is included in nep-exp
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