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Annual Review of Financial Economics

Volume 13, 2021

Social Finance

Abstract

We review an empirical literature that studies the role of social interactions in driving economic and financial decision-making. We first summarize recent work that documents an important role of social interactions in explaining household decisions in housing and mortgage markets. This evidence shows, for example, that there are large peer effects in mortgage refinancing decisions and that individuals’ beliefs about the attractiveness of housing market investments are affected by the recent house price experiences of their friends. We also summarize recent work showing that social interactions affect the stock market investments of both retail and professional investors as well as household financial decisions such as retirement savings, borrowing, and default. Along the way, we describe a number of easily accessible recent data sets for the study of social interactions in finance, including the Social Connectedness Index, which measures the frequency of Facebook friendship links across geographies. We conclude by outlining several promising directions for further research in the field of social finance.

Keyword(s): belief contagion, financial decision-making, JEL B55, JEL G11, JEL G21, JEL G23, JEL G50, peer effects, social dynamics, social networks
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2021-11-01
2024-04-29
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/content/journals/10.1146/annurev-financial-101320-062446
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Social Finance
Annual Review of Financial Economics 13, 37 (2021); https://doi.org/10.1146/annurev-financial-101320-062446
/content/journals/10.1146/annurev-financial-101320-062446
/content/journals/10.1146/annurev-financial-101320-062446
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  • Article Type: Review Article

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