Keeping up with the Jansens: causal peer effect on household spending, beliefs and happiness
Gepubliceerd: 15 februari 2024
How strong are peer effects on the beliefs and spending decisions of individuals? We use a randomized control study in which treated households are told about either average income or debt of individuals like them to assess how peer effects influence their beliefs and spending. The information treatments are successful at moving respondents’ beliefs about peers’ incomes and debt levels. We find that individuals with exogenously higher perceived relative income become more opposed to redistribution and increase the amount of time they spend socializing with peers. In addition, we find some evidence of reallocative “keeping up with the Joneses” on spending, as those who learn their peers earn more than they thought tend to reallocate their spending toward durable goods and away from non-durables. However, the quantitative magnitude of peer effects on spending is small in the months following the information experiment. Peer effects also matter for labor supply decisions and ex-post employment outcomes. Finally, believing that one earns more than peers causally leads to large positive effects on happiness, above and beyond effects coming from spending more time with peers, changing beliefs about redistribution, or changes in spending patterns.
Keywords: Peer effects; surveys
JEL codes D3; D6; D1; E21
Working paper no. 804
804 - Keeping up with the Jansens: causal peer effect on household spending, beliefs and happiness
Research highlights
- This paper presents new causal evidence on the influence of perceived relative income and debt standings on a range of individual beliefs and actions, based on results from a randomized controlled trial (RCT).
- Individuals with higher beliefs about their income relative to their peers are less likely to believe that income and wealth differences are too large and are less supportive of trying to reduce income inequality.
- Spending responds to perceived relative income standings in accordance with “keeping up with the Joneses” behavior, with individuals reallocating their consumption towards more conspicuous spending (durable goods), but the effect on total spending is quite small.
- When individuals learn that their peers earn more than what they previously thought, these individuals become more likely to be employed in subsequent months and their expected household income rises.
- Believing that one makes more money relative to peers causally and meaningfully increases self-reported happiness.
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