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Social Finance

Author

Listed:
  • Theresa Kuchler

    (Leonard N. Stern School of Business, New York University, New York, NY 10012, USA)

  • Johannes Stroebel

    (Leonard N. Stern School of Business, New York University, New York, NY 10012, USA)

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.

Suggested Citation

  • Theresa Kuchler & Johannes Stroebel, 2021. "Social Finance," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 37-55, November.
    • Handle: RePEc:anr:refeco:v:13:y:2021:p:37-55
    DOI: 10.1146/annurev-financial-101320-062446
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    References listed on IDEAS

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    1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    2. Arrondel, Luc & Calvo-Pardo, Hector & Giannitsarou, Chryssi & Haliassos, Michael, 2022. "Informative social interactions," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 246-263.
    3. Arpit Gupta, 2019. "Foreclosure Contagion and the Neighborhood Spillover Effects of Mortgage Defaults," Journal of Finance, American Finance Association, vol. 74(5), pages 2249-2301, October.
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    Cited by:

    1. Bailey, Michael & Gupta, Abhinav & Hillenbrand, Sebastian & Kuchler, Theresa & Richmond, Robert & Stroebel, Johannes, 2021. "International trade and social connectedness," Journal of International Economics, Elsevier, vol. 129(C).
    2. Haliassos, Michael & Jansson, Thomas & Karabulut, Yigitcan, 2021. "Wealth inequality: Opportunity or unfairness?," IMFS Working Paper Series 161, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

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    More about this item

    Keywords

    social networks; peer effects; financial decision-making; social dynamics; belief contagion;
    All these keywords.

    JEL classification:

    • B55 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Social Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G50 - Financial Economics - - Household Finance - - - General

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