Visibility Bias in the Transmission of Consumption Beliefs and Undersaving

70 Pages Posted: 23 Jun 2016 Last revised: 29 Dec 2021

See all articles by Bing Han

Bing Han

University of Toronto, Rotman School of Management

David A. Hirshleifer

Marshall School of Business, USC; National Bureau of Economic Research (NBER)

Johan Walden

University of California, Berkeley - Finance Group

Multiple version iconThere are 2 versions of this paper

Date Written: May 29, 2019

Abstract

We model visibility bias in the social transmission of consumption behavior. When consumption is more salient than non-consumption, people perceive that others are consuming heavily, and infer that future prospects are favorable. This increases aggregate consumption in a positive feedback loop. A distinctive implication is that disclosure policy interventions can ameliorate undersaving. In contrast with wealth-signaling models, information asymmetry about wealth reduces overconsumption. The model predicts that saving is influenced by social connectedness, observation biases, and demographic structure; and provides new insight into savings rates. These predictions are distinct from other common models of consumption distortions.

Keywords: visibility bias, overconsumption, saving, behavioral economics, social influence, social learning

JEL Classification: G11, G41, E71, E21

Suggested Citation

Han, Bing and Hirshleifer, David A. and Walden, Johan, Visibility Bias in the Transmission of Consumption Beliefs and Undersaving (May 29, 2019). Rotman School of Management Working Paper No. 2798638, Available at SSRN: https://ssrn.com/abstract=2798638 or http://dx.doi.org/10.2139/ssrn.2798638

Bing Han

University of Toronto, Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
Canada
4169460732 (Phone)

David A. Hirshleifer (Contact Author)

Marshall School of Business, USC ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.uci.edu/dhirshle/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Johan Walden

University of California, Berkeley - Finance Group ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 643-0547 (Phone)

HOME PAGE: http://www.haas.berkeley.edu/faculty/walden.html

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