Social Networks and Informal Lines of Credit

Project Start:01/2016
Researchers:Olga Goldfayn, Nathanael Vellekoop
Category: Financial Intermediation, Household Finance
Funded by:LOEWE

We investigate how personality traits (openness, conscientiousness, extraversion, agreeableness and neuroticism, as well as locus of control, risk aversion and time preferences) affect consumption, saving and debt behavior of households. Using panel data - an innovation in this literature - we analyze how personality traits are related to consumption and savings behavior, as well as debt behavior. Secondly, we want to shed light on the behavioral channels that could explain these relationships. The first channel we explore is social comparisons. Are individuals with certain personality traits more likely to compare themselves to others? A priori we expect openness and agreeableness to be driving factors here. This could explain certain patterns in consumption and savings behavior. Related to social comparisons is social status, how important individuals think their social status is. A second possible channel is how individuals respond to income shocks. Here we follow a strategy proposed by Jappelli and Pistaferri (2014) and use a survey instrument. The question is how much households would spend out of a hypothetical transitory income shock, which they finds relates well to predicted household characteristics like liquidity constraints. Again we expect certain personality traits to be correlated with (hypothetical) spending behavior, where we can corroborate this with actual spending behavior. Lastly we look at the social circle of households: whether households lend or borrow money from family and friends, as well as within household differences. This project is a subproject of the "Social Finance" cluster.