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The Effect of Social Comparison on Debt Taking: Experimental Evidence

Author

Listed:
  • Grohmann, Antonia

    (DIW Berlin)

  • Koch, Melanie

    (HU Berlin)

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.

Suggested Citation

  • Grohmann, Antonia & Koch, Melanie, 2019. "The Effect of Social Comparison on Debt Taking: Experimental Evidence," Rationality and Competition Discussion Paper Series 227, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:227
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    More about this item

    Keywords

    household finance; lab experiment; social comparison; peer effects;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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