Published Papers

The thoughts and behaviors of financial market participants depend upon adopted cultural traits, including information signals, beliefs, strategies, and folk economic models. Financial traits compete to survive in the human population and are modified in the process of being transmitted from one agent to another. These cultural evolutionary processes shape market outcomes, which in turn feed back into the success of competing traits. This evolutionary system is studied in an emerging paradigm, social finance. In this paradigm, social transmission biases determine the evolution of financial traits in the investor population. It considers an enriched set of cultural traits, both selection on traits and mutation pressure, and market equilibrium at different frequencies. Other key ingredients of the paradigm include psychological bias, social network structure, information asymmetries, and institutional environment.

To study the impact of the choice of injection points in the diffusion of a new product in a society, we developed a model of word-of-mouth diffusion and then applied it to data on social networks and participation in a newly available microfinance loan program in 43 Indian villages. Our model allows us to distinguish information passing among neighbors from direct influence of neighbors' participation decisions, as well as information passing by participants versus nonparticipants. The model estimates suggest that participants are seven times as likely to pass information compared to informed nonparticipants, but information passed by nonparticipants still accounts for roughly one-third of eventual participation. An informed household is not more likely to participate if its informed friends participate. We then propose two new measures of how effective a given household would be as an injection point. We show that the centrality of the injection points according to these measures constitutes a strong and significant predictor of eventual village-level participation.

Can we identify highly central individuals in a network without collecting network data, simply by asking community members? Can seeding information via such nominated individuals lead to significantly wider diffusion than via randomly chosen people, or even respected ones? In two separate large field experiments in India, we answer both questions in the affirmative. In particular, in 521 villages in Haryana, we provided information on monthly immunization camps to either randomly selected individuals (in some villages) or to individuals nominated by villagers as people who would be good at transmitting information (in other villages). We find that the number of children vaccinated every month is 22% higher in villages in which nominees received the information. We show that people's knowledge of who are highly central individuals and good seeds can be explained by a model in which community members simply track how often they hear gossip about others. Indeed, we find in a third data set that nominated seeds are central in a network sense, and are not just those with many friends or in powerful positions.

Historical anecdotes abound of new investors being drawn into a booming asset market, only to suffer when the market turns. While the role of investor contagion in asset bubbles has been explored extensively in the theoretical literature, causal empirical evidence on the topic is much rarer. This paper studies the recent boom and bust in the US housing market and establishes that many novice investors entered the market as a direct result of observing investing activity of multiple forms in their own neighborhoods and that "infected" investors performed poorly relative to other investors along several dimensions.

People often share opinions and information with their social ties, and word of mouth has an important impact on consumer behavior. But what drives interpersonal communication and why do people talk about certain things rather than others? This article argues that word of mouth is goal driven and serves five key functions (i.e., impression management, emotion regulation, information acquisition, social bonding, and persuasion). Importantly, I suggest these motivations are predominantly self- (rather than other) serving and drive what people talk about even without their awareness. Further, these drivers make predictions about the types of news and information people are most likely to discuss. This article reviews the five proposed functions and well as how contextual factors (i.e., audience and communication channel) may moderate which functions play a larger role. Taken together, the paper provides insight into the psychological factors that shape word of mouth and outlines additional questions that deserve further study.

Why are certain pieces of online content (e.g., advertisements, videos, news articles) more viral than others? This article takes a psychological approach to understanding diffusion. Using a unique data set of all the New York Times articles published over a three-month period, the authors examine how emotion shapes virality. The results indicate that positive content is more viral than negative content, but the relationship between emotion and social transmission is more complex than valence alone. Virality is partially driven by physiological arousal. Content that evokes high-arousal positive (awe) or negative (anger or anxiety) emotions is more viral. Content that evokes low-arousal, or deactivating, emotions (e.g., sadness) is less viral. These results hold even when the authors control for how surprising, interesting, or practically useful content is (all of which are positively linked to virality), as well as external drivers of attention (e.g., how prominently content was featured). Experimental results further demonstrate the causal impact of specific emotion on transmission and illustrate that it is driven by the level of activation induced. Taken together, these findings shed light on why people share content and how to design more effective viral marketing campaigns.

This paper establishes a causal relation between an individual's decision whether to own stocks and average stock market participation of the individual's community. We instrument for the average ownership of an individual's community with lagged average ownership of the states in which one's nonnative neighbors were born. Combining this instrumental variables approach with controls for individual and community fixed effects, a broad set of time-varying individual and community controls, and state-year effects rules out alternative explanations. To further establish that word-of-mouth communication drives this causal effect, we show that the results are stronger in more sociable communities.

Assessing its impact as well as its volume will help companies take better advantage of buzz.

Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing his ability to possess the asset. Then, we randomize whether the second member of the pair: (i) receives no information about the first member, or (ii) is informed of the first member's desire to purchase the asset and the result of the randomization that determined possession. This allows us to estimate the effects of learning plus possession, and learning alone, relative to a (no information) control group. We find that both social learning and social utility channels have statistically and economically significant effects on investment decisions. Evidence from a follow-up survey reveals that social learning effects are greatest when the first (second) investor is financially sophisticated (financially unsophisticated); investors report updating their beliefs about asset quality after learning about their peer's revealed preference; and, they report motivations consistent with "keeping up with the Joneses" when learning about their peer's possession of the asset. These results can help shed light on the mechanisms underlying herding behavior in financial markets and peer effects in consumption and investment decisions.

We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one's influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals' opinions over a multidimensional set of issues converge to a single "left-right" spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.

How does interpersonal closeness (IC)--the perceived psychological proximity between a sender and a recipient--influence word-of-mouth (WOM) valence? The current research proposes that high levels of IC tend to increase the negativity of WOM shared, whereas low levels of IC tend to increase the positivity of WOM shared. The authors hypothesize that this effect is due to low versus high levels of IC triggering distinct psychological motives. Low IC activates the motive to self-enhance, and communicating positive information is typically more instrumental to this motive than communicating negative information. In contrast, high IC activates the motive to protect others, and communicating negative information is typically more instrumental to this motive than communicating positive information. Four experiments provide evidence for the basic effect and the underlying role of consumers' motives to self-enhance and protect others through mediation and moderation. The authors discuss implications for understanding how WOM spreads across strongly versus weakly tied social networks.

We model demand for noninstrumental information, drawing on the idea that people derive entertainment utility from suspense and surprise. A period has more suspense if the variance of the next period's beliefs is greater. A period has more surprise if the current belief is further from the last period's belief. Under these definitions, we analyze the optimal way to reveal information over time so as to maximize expected suspense or surprise experienced by a Bayesian audience. We apply our results to the design of mystery novels, political primaries, casinos, game shows, auctions, and sports.