T6: Social Finance – Finance and the Consumer

Project Start:01/2016
Status:Completed
Researchers:Sascha Baghestanian, Adrian Buss, Giuliano Curatola, Ilya Dergunov, Alessandro Gioffré, Paul Gortner, Holger Kraft, Christoph Kühn, Wenhui Li, Baptiste Massenot, Peter Ockenfels, Yuri Pettinicchi, Raman Uppal, Nathanael Vellekoop, Grigory Vilkov, Christian Wilde, Joël van der Weele
Category: Financial Intermediation, Law and Finance, Household Finance, Financial Markets, Macro Finance, Experiment Center
Funded by:LOEWE

This project studies interactions between consumers and the financial environment, focusing on how these are influenced by social and network interactions. We explore how social interactions influence behavior through preferences and information. We consider preference structures with exogenous concern for status, endogenous evolution of habits through social interaction, evolution of preferences as a function of the popularity of goods among peers, and setups where concern for status arises in the context of a competitive game against peers. We study how information on the actions of others (e.g. through online trading platforms that allow copying of others’ behavior) or the educational background of peers (financial literacy externalities) influence own financial decisions. We seek to identify exogenous influences through lab and field experiments or household survey data.

 

In the financial environment online trading platforms are evolving, and their implications depend on the trust consumers place on the decentralized system. We study sustainability and stability of such network equilibria. The legal and institutional framework also helps shape the financial environment. We study how features, such as bailouts or capital ratios, could influence financial behavior that has a social element in that it depends on trust, such as the liquidity provided by consumers/investors to borrowers.

 

We utilize a battery of available methods (mathematical, econometric, computational and experimental) and we bring together researchers from finance, macro, micro and mathematics. We consider both individual behavior and its general equilibrium implications for wealth distribution, bubbles and crashes, and for sustainability of the financial environment. We also provide a rich set of policy implications for social multipliers, new financial technologies, and relevant institutions whose full significance has not yet been appreciated or explored.

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